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FOR M&A BUYERS, SELLERS, DEAL CPAS, AND THE INVESTMENT BANKERS PRICING THEM

The §382 limitation that determines what an NOL is actually worth to a buyer.

Post-TCJA, NOLs from 2018+ carry forward indefinitely — meaning more sellers carry NOLs forever, and more buyers will encounter targets with substantial NOL stockpiles. But §382's annual limitation often reduces a $50M NOL to less than $5M of present-value tax savings to the buyer. Most buyers don't model this. Run it before you sign the LOI.

~4.5%
IRS LT tax-exempt rate
80%
Post-TCJA NOL income cap
5-yr
NUBIG recognition period
21%
Federal corporate rate
YOUR ANALYSIS
1
The NOLs
2
Ownership change
3
Loss-corp value
4
NUBIG / NUBIL
5
Limitation & PV
STAGE 1 OF 5

The target's NOLs

Defaults model a target with $50M of accumulated NOLs (typical mid-cap distressed acquisition or pre-revenue tech rollup). Get NOL detail from the target's tax returns (Form 1120 line 29a, NOL deduction; Form 1120 Schedule K-1 NOL detail).

NOLs arising in tax years beginning before 1/1/2018 carry forward 20 years and CAN offset 100% of taxable income. The oldest of these expire by 2037 (2017 NOL + 20 years).
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NOLs arising in tax years beginning after 12/31/2017 carry forward INDEFINITELY but can only offset 80% of taxable income in any given year (TCJA change). They CAN'T be carried back. This is the big stockpile most modern targets have.
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§382 also limits other "pre-change" tax attributes: capital loss carryovers (5-year limit), general business credits, foreign tax credits, AMT credit. Enter total face value; tool applies §382 limitation to all attributes pro-rata.
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Used to compute the after-tax value of the NOL deduction. Federal C-corp: 21%. Add state for blended rate (most M&A models use 25-27%).
The TCJA NOL change that's quietly transforming M&A. Pre-TCJA, NOLs expired in 20 years. Sellers with large NOLs were under the gun to use them or sell to a buyer who could. Post-TCJA, post-2017 NOLs never expire. Result: more sellers sit on NOL stockpiles indefinitely, and every M&A buyer encounters them. The §382 limitation now matters more than ever — and most buyers still model NOLs as if §382 doesn't exist.
STAGE 2 OF 5

Ownership change determination

§382 limitation triggers when "5-percent shareholders" of the loss corporation cumulatively increase their ownership by more than 50 percentage points over a 3-year testing period.

Almost any acquisition of 50%+ of a corporation triggers §382. Stock acquisitions trigger it; asset acquisitions don't (NOLs stay with the seller). Mergers usually trigger. Recapitalizations, big secondary offerings, even multi-step deals with smaller pieces can trigger if cumulative ownership changes >50% in 3 years.
Stock acquisition: NOLs transfer subject to §382 limitation. Asset acquisition: NOLs stay with seller (don't transfer). §338(h)(10) election: deemed asset sale for tax purposes — NOLs do NOT transfer to buyer (because the asset deal extinguishes the seller corporation). Merger / reorganization: subject to §368 reorg rules + §382.
§382 requires the buyer to continue the loss corporation's business OR use a significant portion of its assets in a business for 2 years after the change. Failure to satisfy COBE eliminates the NOLs entirely — not just limits them. For most strategic acquisitions this is satisfied automatically; for shell-company acquisitions or wind-downs it can fail.
If the principal purpose of the acquisition is to evade or avoid federal income tax by securing the NOLs, §269 disallows them entirely. Most operating-business acquisitions are clearly motivated by operating reasons, not NOL value — but if the price paid is unusually high relative to non-NOL business value, the IRS may challenge.
Lesson: when NOLs vanish entirely. Three ways NOLs disappear in a transaction: (1) Asset deal — NOLs stay with the seller, who can use them against any future taxable income (often modest if seller is wound down). (2) §338(h)(10) election — deemed asset sale, NOLs extinguished. (3) §269 anti-trafficking — if NOL acquisition is the primary purpose, IRS disallows the NOLs entirely. Plus COBE failure under §382. The "I'm buying for the NOLs" deal motivation is exactly the IRS red flag for §269 — be careful what you say in writing.
STAGE 3 OF 5

Loss corporation FMV at change date

The §382 annual limitation = FMV of loss corporation × IRS long-term tax-exempt rate. This is the formula that does most of the damage to NOL value.

Equity value of the loss corporation immediately before the ownership change. For a public target: market cap. For a private target: the negotiated equity purchase price (cash + stock + assumption of debt-like items). Critical input — the §382 limitation is roughly 4.5% of this number per year.
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Set monthly by IRS. Currently around 4.5% (mid-2026; verify current rate at irs.gov "Section 1274(d) Long-term applicable federal rates"). Was historically 1.5-2% during ZIRP era; jumped above 4% in 2022-2023 as rates rose. Higher rate = more NOL usable per year = NOLs more valuable. Lower rate = NOLs less valuable.
%
If 1/3+ of loss corporation's value is "nonbusiness assets" (cash, marketable securities, passive holdings — but operating cash for working capital is excluded), the FMV used in the §382 calculation is REDUCED by those nonbusiness assets. Designed to prevent buyers from inflating FMV with cash to boost the limitation.
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If buyer "stuffs" the loss corporation with assets shortly before the ownership change to inflate FMV (and thus the §382 limitation), the IRS will disregard those contributions. Most legitimate transactions don't trigger this; aggressive structures do.
The §382 formula in one sentence. Annual NOL usable = FMV of loss corp × IRS long-term tax-exempt rate. For a $100M target with 4.5% rate, that's $4.5M of NOLs usable per year. If the target has $50M of NOLs, it takes ~11 years of full taxable income just to fully use them — and that's BEFORE applying the 80% cap on post-2017 NOLs. The PV of those distant-future NOL deductions is dramatically less than the face value suggests.
STAGE 4 OF 5

Built-in gains & losses (NUBIG / NUBIL)

If the loss corporation has built-in GAINS (NUBIG) at the change date — assets with FMV above tax basis — recognized gains during the 5-year recognition period INCREASE the §382 limitation. If built-in LOSSES (NUBIL), recognized losses during the 5-year period are SUBJECT to the limitation (treated like pre-change NOLs).

Sum across all assets: FMV − tax basis. Positive (NUBIG) is good for the buyer because recognizing those gains in the 5-yr post-change period adds to §382 limitation. Negative (NUBIL) is bad. To qualify for the NUBIG/NUBIL adjustment, the amount must exceed the LESSER of $10M or 15% of FMV.
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If you have NUBIG, what % do you expect to recognize as gain in the 5 years post-change? Higher recognition = larger §382 limitation uplift. Real estate sales, sale of appreciated assets, depreciation recapture all count.
%
After acquisition, what's the target's expected annual taxable income? Used to determine actual NOL usage. Note: post-2017 NOLs can only offset 80% of taxable income, so even unlimited NOLs leave 20% of income taxed.
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Used to compute the PV of NOLs usable over time. For strategic acquirers: 8-10%. For PE-backed: 12-15%. Higher discount rate = lower PV of distant NOL usage = NOLs less valuable today.
%
Lesson: NUBIG planning is the buyer's lever. If the target has $20M of NUBIG and the buyer recognizes those gains in the 5-yr post-change window (selling appreciated real estate, taking depreciation recapture, etc.), the §382 limitation is increased by $20M × 21% = $4.2M of additional NOL absorption capacity beyond the formula limitation. Sophisticated buyers do explicit NUBIG identification + planned gain recognition during the 5-year window to maximize NOL usage. Most buyers don't do this work.
STAGE 5 OF 5 · LIMITATION & PV

§382 limitation analysis

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Face value of NOLs (no §382)
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PV of usable NOLs (with §382)
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§382 annual limitation calculation

NOL run-out schedule

Decision metrics

Recommendations

FOR BUYERS — PAIRS WITH THE BUSINESS BUYER'S GUIDE
Business Buyer's Guide · Asset vs. Stock Sale · SBA Financing · Working Capital Peg
NOL valuation is one of seven critical inputs the buyer needs to nail before the LOI. The Business Buyer's Guide is the umbrella playbook covering search, LOI, QofE, deal structure, NOL valuation (this tool), WC peg, escrow, and the 100-day operating plan. The Asset vs. Stock Sale tool models the broader deal-structure decision — your NOL PV from this tool should reduce your stock-sale offer accordingly (or shift you toward an asset deal where NOLs stay with seller). Subscribe to the library →
SOLO M&A & PE GUIDES

NOL valuation is one of seven critical tax inputs in any M&A deal. Get the full framework.

§382 NOL limitation modeling · §338(h)(10) deal-structure decision · §1060 asset allocation · QSBS §1202 stock exclusion · §351/§368 tax-free reorganizations · transaction costs deduction timing · the buyer's-tax-position-as-pricing-lever framework.

§382 is one of the most fact-specific provisions in subchapter C. The model uses simplified core mechanics but does NOT separately model: §382(h) detailed NUBIG/NUBIL identification rules including §1374 recognition periods (different from §382), §382(l)(5) bankruptcy exception, §382(l)(6) bankruptcy exception, "sub-group" rules under §1.1502-94 for consolidated groups, multiple ownership change interactions, options-as-stock attribution rules, segregation-event rules, the "5-percent shareholder" identification mechanics under §1.382-2T, or built-in deduction items (deferred comp, etc.). Bankruptcy reorganizations have their own §382(l)(5) and §382(l)(6) elections that materially change the math. Engage M&A tax counsel familiar with §382 for any actual transaction — this is among the most error-prone areas of corporate tax. This is not tax advice.
WANT THE METHODOLOGY BEHIND THIS TOOL?
This calculator is one chapter of Private Equity Reference Guide.
The tool gives you the answer. The guide gives you the argument — the case law, the worked examples, the negotiation playbook, the cross-check tables, the exception cases. Read the chapter and you can defend your number to a board, a buyer, an examiner, or a counterparty.
The methodology behind this calculator is in Ch 26 Portco Tax (§382 NOL) of the reference guide.
See the Guide → Browse all 22 guides
PROFESSIONAL DISCLAIMER · PLEASE READ

Educational and informational purposes only. This calculator and any output it produces are intended solely for general educational and decision-support purposes. They do not constitute investment, tax, legal, accounting, appraisal, lending, insurance, or any other professional advice, and they do not create a fiduciary, attorney-client, accountant-client, or advisor-client relationship of any kind.

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