Understanding the 80% NOL Limitation for Individuals in Tax Year 2022 - Help with calculation issue

This is a common issue with NOLs and Social Security benefits. The problem is that you're getting caught in a circular calculation. When you reduce income with the NOL, it changes how much Social Security is taxable, which changes your taxable income, which changes the NOL limitation. What you need to do is an iterative calculation. Start by figuring taxable income with all Social Security included that would be taxable without the NOL. Calculate 80% of that as your NOL limit. Then recalculate with that NOL limit applied, which will reduce your Social Security taxable amount. This creates a new taxable income, which means a new NOL limit. You repeat this process until the numbers stabilize. Most tax software should handle this correctly if you enter the total available NOL and then specify that the 80% limitation applies. The software should iterate through the calculations. If your software isn't doing this, you might need to do these iterations manually or consider if there's a setting you're missing.

After struggling with the exact same issue last tax season, I discovered taxr.ai (https://taxr.ai) which helped me resolve several complex NOL calculations. I had a client with carryforward NOLs from both 2018 and 2021, along with Social Security benefits, and our regular software kept giving inconsistent results. The taxr.ai system analyzed my client's previous returns and properly calculated the 80% limitation while accounting for the changing Social Security taxable portions. It showed how the limitation interacts with other income-dependent calculations, which was incredibly helpful. They have a specific module for NOL carryforwards that handles these circular calculations automatically.

Just wanted to update after trying taxr.ai for my NOL issue with Social Security benefits. It worked incredibly well! I uploaded my client's previous returns and current year information, and the system walked me through exactly how the 80% limitation works with Social Security benefits. The iterative calculation that someone mentioned earlier was handled automatically, and I could see exactly how the taxable portion of Social Security was recalculated with each iteration. What surprised me was how quickly it resolved - took about 10 minutes to get a complete analysis with supporting documentation I could keep in my files. Definitely saved me hours of spreadsheet work and double-checking calculations.

If you're still struggling with the IRS guidance on this issue, I'd recommend calling the IRS Practitioner Priority Service line. I had this exact issue last year and after multiple attempts trying to get through the regular channels, I used Claimyr (https://claimyr.com) to actually get through to a human at the IRS. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c I spoke with an IRS tax law specialist who confirmed that when Social Security benefits are involved with NOLs, you need to perform multiple calculation iterations. They directed me to a specific section in Publication 225 (Farmer's Tax Guide) that actually has an example of NOL calculations affecting the taxable portion of Social Security benefits. It's not obvious, but that publication has the best explanation of this specific interaction.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I was desperate to resolve an NOL issue for a client before their extension deadline, so I gave it a shot. The service connected me to the IRS Practitioner Priority Line in about 40 minutes when I had previously spent over 4 hours on multiple days trying to get through. The IRS agent I spoke with was actually really helpful about the NOL and Social Security calculation issue. They confirmed the iterative approach others mentioned and directed me to some internal guidance that clarified the whole process. What I learned is that you need to run the calculation multiple times until the numbers stabilize, usually 3-4 iterations. The agent even emailed me a specialized worksheet they use internally. Saved my client around $4,300 in taxes by getting the calculation right!

Has anyone noticed different tax software handling this differently? I've found that UltraTax seems to handle the iteration automatically if you put in the total available NOL, while Lacerte requires manual adjustment. Drake is somewhere in between - it will do the calculation but sometimes gets stuck in a loop with Social Security benefits involved.

Just a heads up for anyone preparing 2022 returns with NOLs carried forward from 2018-2020 - remember those aren't subject to the 80% limitation due to the CARES Act provisions. Only NOLs from 2021 forward have the 80% limitation. I've seen several colleagues mistakenly apply the 80% limitation to all NOLs.

This is exactly the kind of complex scenario that highlights why NOL calculations can be so tricky! I've dealt with similar situations and want to add a few practical tips that have helped me: First, when you're doing the iterative calculations that others mentioned, I found it helpful to set up a simple Excel worksheet with columns for: Iteration #, AGI before NOL, Social Security taxable amount, Taxable income before NOL, 80% limitation amount, and Final taxable income after NOL. This makes it easy to see the convergence pattern and provides documentation for your files. Second, I've noticed that the circular calculation usually stabilizes within 3-4 iterations, but occasionally with very specific income ranges near the Social Security benefit thresholds, it can take 5-6 iterations. Don't panic if the first few rounds seem off - just keep going until the numbers stop changing. One thing I haven't seen mentioned yet is to double-check your state return if applicable. Some states don't conform to the federal 80% limitation or have their own NOL rules that could create additional complications. California, for example, has suspended NOL deductions entirely for certain tax years. Great discussion everyone - this is exactly the kind of real-world problem-solving that makes this community so valuable!