What is an NOL deduction, and why is it allowed? Question content area bottom Part 1 A. An NOL deduction is a deduction taxpayers take against their income of a year following the year in which they incur the NOL. The NOL arises when the taxpayer's business deductions (and personal casualty loss deductions) exceed the taxpayer's business and other income. The deduction can be carried forward indefinitely but the deduction is limited to 80% of taxable income before the NOL deduction. The statute allows the deduction in an attempt to equalize the federal income tax burden imposed on taxpayers with business income that fluctuates from year to year, with the tax burden imposed on taxpayers with business income that is relatively stable from year to year. B. An NOL deduction is a deduction taken against the income of a year in which the NOL is incurred. An NOL arises when the taxpayer's personal deductions exceed the taxpayer's salary and other personal income. The statute allows the deduction in an attempt to compensate for the federal income tax burden imposed on taxpayers with personal expenses that exceed personal income. C. An NOL deduction is a deduction taken against the income of