Buying a Business with Tax Losses: How NOL Acquisitions Work
Acquiring a company with net operating losses can offset your taxable income — but §382 limits how fast you can use them.
A competitor in your market is struggling — losing money, but has good equipment, trained staff, and a customer list. They also have $2M in net operating loss carryforwards on their books. If you buy them, can you use those losses against your profitable business?
The answer is yes, with limits. And the limits matter more than the headline number.
Section 382 Limitation
When an ownership change exceeds 50%, §382 caps the annual use of the acquired company's pre-change NOLs. The cap = the value of the loss corporation × the long-term tax-exempt rate (approximately 5-6% in 2025).
Example: You buy a struggling HVAC company worth $500K with $2M in NOLs. Annual §382 limit: $500K × 5.5% = $27,500/year. At that rate, it takes over 70 years to fully use the losses — far beyond the 20-year carryforward period. Most of the NOL disappears unused.
When It Actually Works
NOL acquisitions make sense when: the target has substantial value beyond its losses (good workforce, contracts, equipment), the built-in gains recognition rule provides additional NOL capacity, or the acquisition is structured as an asset purchase where NOLs aren't the primary consideration.
Don't buy a company for its losses. Buy it for its business value, and treat the NOLs as a bonus — subject to §382 reality. See the tax strategy guide for other acquisition-related strategies.
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