From Strategic CFO
A net operating loss occurs when a company’s operating expenses and allowable tax deductions exceed its operating income for an accounting period.
A net operating loss (NOL) occurs when a company’s allowable deductions exceed its taxable income within a tax period.
From my current understanding, these contradict. The way NOL is defined has implications on carryforward. Take the following before considering carryforward:
EBIT: 1000 3000 Mortgage Interest: (2000) (2000) EBT: (1000) 1000
Is NOL carry-forward derived from EBIT (both years positive)?
NOL Generated: -- -- NOL Carry-Forward: -- --
Or is it derived from EBT (first year negative)?
NOL Generated: 1000 -- NOL Carry-Forward: -- (800)
800 is used instead of 1000 because NOL deduction was recently limited to 80%. The final difference is that in the second year, we get taxed on $1000 vs. 1000 - 800 = $200.