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Net Operating Losses for Individuals
|
536
46569U
Net Operating Losses (NOLs) for
Individuals, Estates, and Trusts
What's New1
Reminder1
Introduction2
NOL Steps2
How To Figure an NOL2
Illustrated Schedule A
(Form 1045)3
When To Use an NOL3
How To Claim an NOL Deduction8
Deducting a Carryback8
Deducting a Carryforward8
Change in Marital Status9
Change in Filing Status9
Illustrated Form 104510
How To Figure an NOL Carryover12
Illustrated Schedule B
(Form 1045)12
NOL Carryover From 2005 to 200615
Worksheet Instructions15
How To Get Tax Help18
Index19
What's New
- 5-year NOL carryback of certain timber losses.
A loss attributable to qualified timber property can be treated as a farming loss subject to a 5-year carryback period if any portion of the
property is located in the Gulf Opportunity (GO) Zone, Rita GO Zone, or Wilma GO Zone. See Certain timber losses, later.
- Gulf Opportunity (GO) Zone loss.
A 5-year carryback period applies to the portion of an NOL that is a qualified GO Zone loss. In addition, the 90% limit on the alternative tax NOL
deduction (ATNOLD) does not apply to such portion of the ATNOLD. See Qualified GO Zone loss, later.
- Domestic production activities deduction not allowed in figuring an NOL.
The domestic production activities deduction is not allowed in figuring your NOL.
Reminder
- Photographs of missing children.
The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children
selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the
photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.
If your deductions for the year are more than your income for the year, you may have a net operating loss (NOL). An NOL year
NOL year is the year in which an NOL occurs. You can use an NOL by deducting it from your income in another year or years.
What this publication covers.
This publication discusses NOLs for individuals, estates, and trusts. It covers:
How to figure an NOL,
When to use an NOL,
How to claim an NOL deduction, and
How to figure an NOL carryover.
To have an NOL, your loss must generally be caused by deductions from your:
Trade or business,
Work as an employee,
Casualty and theft losses,
Moving expenses, or
Rental property.
A loss from operating a business is the most common reason for an NOL.
Partnerships and S corporations generally cannot use an NOL. However, partners or shareholders can use their separate shares of the partnership's
or S corporation's business income and business deductions to figure their individual NOLs.
Keeping records.
You should keep records for any tax year that generates an NOL for three years after you have used the carryback/carryforward or three years after
the carryforward expires.
What is not covered in this publication?
The following topics are not covered in this publication.
Bankruptcies. See Publication 908, Bankruptcy Tax Guide.
NOLs of corporations. See Publication 542, Corporations.
Comments and suggestions.
Comments on publication
Suggestions for publication
We welcome your comments about this publication and your suggestions for future editions.
You can write to us at the following address:
Internal Revenue Service
Individual Forms and Publications Branch
SE:W:CAR:MP:T:I
1111 Constitution Ave. NW, IR-6406
Washington, DC 20224
We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in
your correspondence.
You can email us at
*taxforms@irs.gov. (The asterisk must be included in the
address.) Please put Publications Comment on the subject line. Although we cannot respond individually to each email, we do appreciate your
feedback and will consider your comments as we revise our tax products.
Tax questions.
If you have a tax question, visit
www.irs.gov or call 1-800-829-1040. We cannot answer tax questions at either
of the addresses listed above.
Ordering forms and publications.
Visit
www.irs.gov/formspubs to download forms and publications, call 1-800-829-3676, or write to the National Distribution Center at the
address shown under How To Get Tax Help in the back of this publication.
Publication
4492
Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma
Form (and Instructions)
Amended U.S. Individual Income Tax Return
Application for Tentative Refund
See How To Get Tax Help near the end of this publication for information about getting these forms.
NOL Steps
Steps in figuring NOL
Follow Steps 1 through 5 to figure and use your NOL.
Step 1.
Complete your tax return for the year. You may have an NOL if a negative figure appears on the line below:
Individuals — Form 1040, line 41.
Estates and trusts — Form 1041, line 22.
If the amount on that line is not negative, stop here — you do not have an NOL.
Step 2.
Determine whether you have an NOL and its amount. See How To Figure an NOL, later. If you do not have an NOL, stop here.
Step 3.
Decide whether to carry the NOL back to a past year or to waive the carryback period and instead carry the NOL forward to a future year. See
When To Use an NOL, later.
Step 4.
Deduct the NOL in the carryback or carryforward year. See How To Claim an NOL Deduction, later. If your NOL deduction is equal to or
less than your taxable income without the deduction, stop here — you have used up your NOL.
Step 5.
Determine the amount of your unused NOL. See How To Figure an NOL Carryover, later. Carry over the unused NOL to the next carryback or
carryforward year and begin again at Step 4.
Note.
If your NOL deduction includes more than one NOL amount, apply Step 5 separately to each NOL amount, starting with the amount from the earliest
year.
How To Figure an NOL
How to figure an NOL
If your deductions for the year are more than your income for the year, you may have an NOL.
There are rules that limit what you can deduct when figuring an NOL. In general, the following items are not allowed when figuring an NOL.
Any deduction for personal exemptions.
Capital losses in excess of capital gains.
The section 1202 exclusion of 50% of the gain from the sale or exchange of qualified small business stock.
Nonbusiness deductions in excess of nonbusiness income.
Net operating loss deduction.
The domestic production activities deduction.
Schedule A (Form 1045).
Figuring an NOL:
Schedule A (Form 1045)
Schedule A (Form 1045)
Forms and schedules:
Schedule A (Form 1045)
Use Schedule A (Form 1045) to figure an NOL. The following discussion explains Schedule A and includes an illustrated example.
First, complete Schedule A, line 1, using amounts from your return. If line 1 is a negative amount, you may have an NOL.
Next, complete the rest of Schedule A to figure your NOL.
Nonbusiness deductions (line 6).
Enter on line 6 deductions that are not connected to your trade or business or your employment. Examples of deductions not related to your trade or
business are:
Alimony,
Contributions to an IRA or other self-employed retirement plan,
Health savings account deduction,
Archer MSA deduction,
Itemized deductions (except for casualty and theft losses, state income tax on business profits, and any employee business expenses),
and
The standard deduction (if you do not itemize your deductions).
Do not enter business deductions on line 6. These are deductions that are connected to your trade or business. They include the following.
State income tax on business profits.
Educator expenses.
Moving expenses.
The deduction of one-half of your self-employment tax or your deduction for self-employed health insurance.
Domestic production activities deduction.
Rental losses.
Loss on the sale or exchange of business real estate or depreciable property.
Your share of a business loss from a partnership or S corporation.
Ordinary loss on the sale or exchange of stock in a small business corporation or a small business investment company.
If you itemize your deductions, casualty and theft losses (even if they involve nonbusiness property) and employee business expenses (such
as union dues, uniforms, tools, education expenses, and travel and transportation expenses).
Loss on the sale of accounts receivable (if you use an accrual method of accounting).
Interest and litigation expenses on state and federal income taxes related to your business.
Unrecovered investment in a pension or annuity claimed on a decedent's final return.
Payment by a federal employee to buy back sick leave used in an earlier year.
Nonbusiness income (line 7).
Figuring an NOL:
Nonbusiness income
Enter on line 7 only income that is not related to your trade or business or your employment. For example, enter your annuity income, dividends,
and interest on investments. Also, include your share of nonbusiness income from partnerships and S corporations.
Do not include on line 7 the income you receive from your trade or business or your employment. This includes salaries and wages, self-employment
income, and your share of business income from partnerships and S corporations. Also, do not include rental income or ordinary gain from the sale or
other disposition of business real estate or depreciable business property.
Adjustment for section 1202 exclusion (line 17).
Enter on line 17 any gain you excluded under section 1202 on the sale or exchange of qualified small business stock.
Adjustments for capital losses (lines 19–22).
Figuring an NOL:
Capital losses
The amount deductible for capital losses is limited based on whether the losses are business capital losses or nonbusiness capital losses.
Nonbusiness capital losses.
You can deduct your nonbusiness capital losses (line 2) only up to the amount of your nonbusiness capital gains without regard to any section 1202
exclusion (line 3). If your nonbusiness capital losses are more than your nonbusiness capital gains without regard to any section 1202 exclusion, you
cannot deduct the excess.
Business capital losses.
You can deduct your business capital losses (line 11) only up to the total of:
Your nonbusiness capital gains that are more than the total of your nonbusiness capital losses and excess nonbusiness deductions (line 10),
and
Your total business capital gains without regard to any section 1202 exclusion (line 12).
Domestic production activities deduction.
Domestic production activities deduction
You cannot take the domestic production activities deduction when figuring your NOL. Enter on line 23 any domestic production activities deduction
claimed on your return.
NOLs from other years (line 24).
Figuring an NOL:
NOL deduction
You cannot deduct any NOL carryovers or carrybacks from other years. Enter the total amount of your NOL deduction for losses from other years.
Illustrated Schedule A (Form 1045)
Illustrated forms and schedules:
Schedule A (Form 1045)
The following example illustrates how to figure an NOL. It includes filled-in pages 1 and 2 of Form 1040 and Schedule A (Form 1045).
Example.
Glenn Johnson is in the retail record business. He is single and has the following income and deductions on his Form 1040 for 2005.
INCOME
Wages from part-time job
$1,225
Interest on savings
425
Net long-term capital gain on sale of real estate used in business
2,000
Glenn's total income
$3,650
DEDUCTIONS
Net loss from business (gross income of $67,000 minus expenses of $72,000)
$5,000
Net short-term capital loss
on sale of stock
1,000
Standard deduction
5,000
Personal exemption
3,200
Glenn's total deductions
$14,200
Form 1040 U.S. Individual Income Tax Return 2005
Summary: This is an example of Form 1040 (2005) completed as pertains to the example in the text. The completed line items are:
Under
Label Here:
Your first name and initial field contains Glenn M.
Last name field contains Johnson
Your social security number field contains 765-00-4321
Home address (number and street). If you have a P.O. box, see page 16 field contains 5603 East Main Street
City, town or post office, state, and ZIP code. If you have a foreign address, see page 16. field contains Anytown, Virginia
20000
Under
Presidential Election Campaign:
Do you, or your spouse if filing a joint return, want $3 to go to this fund? You--Yes checkbox
checked
Under
Filing Status:
Single checkbox checked
Under
Exemptions:
6a. Yourself. If someone can claim you as a dependent, do not check box 6a checkbox checked
Number of boxes checked on 6a and 6b field contains 1
6d. Total number of exemptions claimed field contains 1
Under
Income:
7. Wages, salaries, tips, etcetera. Attach Form(s) W-2 field contains 1,225
8a. Taxable interest. Attach Schedule B if required field contains 425
12. Business income or (loss). Attach Schedule C or C-EZ field contains negative 5,000
13. Capital gain or (loss). Attach Schedule D if required. If not required, check here field contains 1,000 Footnote: Net capital
gain ($2,000 gain less $1,000 loss)
22. Add the amounts in the far right column for lines 7 through 21. This is your total income field contains negative
2,350
Under
Adjusted Gross Income:
37. Subtract line 36 from line 22. This is your adjusted gross income field contains negative
2,350
Form 1040 (2005) Page 2
Summary: This is an example of Form 1040 (2005), page 2 as pertains to the text. The completed line items are:
Under
Tax and Credits:
38. Amount from line 37 (adjusted gross income) field contains negative 2,350
40. Itemized deductions (from Schedule A) or your standard deduction (see left margin) field contains 5,000
41. Subtract line 40 from line 38 field contains negative 7,350
42. If line 38 is over $109,475 or you provide housing to a person displaced by Hurricane Katrina, see page 37. Otherwise, multiply $3,200 by
the total number of exemptions claimed on line 6d. field contains 3,200
43. Taxable income. Subtract line 42 from line 41. If line 42 is more than line 41, enter 0 field contains
0
Under
Sign Here:
Your signature field contains Glenn M. Johnson
Date field contains 2-4-2006
Your occupation field contains Self-employed
Form 1045 (2005) Page 2
Summary: This is an example of Form 1045 (2005), page 2 with items included as described in the text. Additionally, these line items are
completed:
Schedule A--NOL. See page 5 of the instructions.
1.Enter the amount from your 2005 Form 1040, line 41. Estates and trusts, enter taxable income increased by the amount of the charitable
deduction, income distribution, and exemption amount field contains negative 7,350
2. Nonbusiness capital losses before limitation. Enter as a positive number field contains 1,000
3. Nonbusiness capital gains (without regard to any section 1202 exclusion) field is blank
4. If line 2 is more than line 3, enter the difference; otherwise, enter 0 field contains 1,000
5. If line 3 is more than line 2, enter the difference; otherwise, enter 0 field contains 0
6. Nonbusiness deductions. See page 5 of the instructions field contains 5,000
7. Nonbusiness income other than capital gains. See page 5 of the instructions field contains 425
8. Add lines 5and 7 field contains 425
9. If line 6 is more than line 8, enter the difference; otherwise, enter 0 field contains 4,575
10. If line 8 is more than line 6, enter the difference; otherwise, enter 0. But do not enter more than line 5 field contains
0
11. Business capital losses before limitation. Enter as a positive number field is blank
12. Business capital gains (without regard to any section 1202 exclusion) field contains 2,000
13. Add lines 10 and 12 field contains 2,000
14. Subtract line 13 from line 11. If zero or less, enter 0 field contains 0
15. Add lines 4 and 14 field contains 1,000
18. Subtract line 17 from line 16. If zero or less, enter 0 field contains 0
20. If line 18 is more than line 19, enter the difference; otherwise, enter 0 field contains 0
21. If line 19 is more than line 18, enter the difference; otherwise, enter 0 field contains 0
22. Subtract line 20 from line 15. If zero or less, enter 0 field contains 1,000
23. Domestic production activities deduction from Form 1040, line 35 (or included on Form 1041, line 15) field contains 0
24. NOL. deduction for losses from other years. Enter as a positive number field contains 0
25. NOL. Combine lines 1, 9, 17, 21 through 24. If the result is less than zero, enter it here and on page 1, line 1a. If the result is zero
or more, you do not have an NOL.Field contains negative 1,775
Glenn's deductions exceed his income by $10,550 ($14,200 − $3,650). However, to figure whether he has an NOL, certain deductions are not
allowed. He uses Schedule A (Form 1045) to figure his NOL. See the illustrated Schedule A (Form 1045), later.
The following items are not allowed on Schedule A (Form 1045).
Nonbusiness net short-term capital loss
$1,000
Nonbusiness deductions
(standard deduction, $5,000) minus
nonbusiness income (interest, $425)
4,575
Deduction for personal exemption
3,200
Total adjustments to net loss
$8,775
Therefore, Glenn's NOL for 2005 is figured as follows:
Glenn's total 2005 income
$3,650
Less:
Glenn's original 2005 total deductions
$14,200
Reduced by the disallowed items
− 8,775
− 5,425
Glenn's NOL for 2005
$1,775
When To Use an NOL
When to use an NOL
Carryforward period
Carryback period
Generally, if you have an NOL for a tax year ending in 2005, you must carry back the entire amount of the NOL to the 2 tax years before the NOL
year (the carryback period), and then carry forward any remaining NOL for up to 20 years after the NOL year (the carryforward period). You can,
however, choose not to carry back an NOL and only carry it forward. See Waiving the Carryback Period, later. You cannot deduct any part of
the NOL remaining after the 20-year carryforward period.
NOL year.
NOL year
This is the year in which the NOL occurred.
Exceptions to 2-Year Carryback Rule
Eligible losses, farming losses, qualified GO Zone losses, and specified liability losses, defined below, qualify for longer carryback periods.
Eligible loss.
Eligible loss
The carryback period for eligible losses is 3 years. Only the eligible loss portion of the NOL can be carried back 3 years. An eligible loss is any
part of an NOL that:
Is from a casualty or theft, or
Is attributable to a Presidentially declared disaster for a qualified small business.
An eligible loss does not include a farming loss or a qualified GO Zone loss.
Qualified small business.
Qualified small business
A qualified small business is a sole proprietorship or a partnership that has average annual gross receipts (reduced by returns and allowances) of
$5 million or less during the 3-year period ending with the tax year of the NOL. If the business did not exist for this entire 3-year period, use the
period the business was in existence.
Farming loss.
Farming loss
The carryback period for a farming loss is 5 years. Only the farming loss portion of the NOL can be carried back 5 years. A farming loss is the
smaller of:
The amount that would be the NOL for the tax year if only income and deductions attributable to farming businesses were taken into account,
or
The NOL for the tax year.
Farming business.
Farming business
A farming business is a trade or business involving cultivation of land, raising or harvesting of any agricultural or horticultural commodity,
operating a nursery or sod farm, raising or harvesting of trees bearing fruit, nuts, or other crops, or ornamental trees. The raising, shearing,
feeding, caring for, training and management of animals is also considered a farming business.
A farming business does not include contract harvesting of an agricultural or horticultural commodity grown or raised by someone else. It also does
not include a business in which you merely buy or sell plants or animals grown or raised by someone else.
Certain timber losses.
Timber losses
Income and deductions attributable to qualified timber property can be treated as attributable to a farming business if any portion of the property
is located in the GO Zone, Rita GO Zone, or Wilma GO Zone, and the income and deductions are allocable to the part of the tax year which is after the
applicable date below.
August 27, 2005, if any portion of the property is located in the GO Zone.
September 22, 2005, if any portion of the property is located in the Rita GO Zone (but not in the GO Zone).
October 22, 2005, if any portion of the property is located in the Wilma GO Zone (but not in the GO Zone or the Rita GO Zone).
However, these rules apply only to a timber producer who:
Held qualified timber property (defined in Publication 535, Business Expenses) on the applicable date below:
August 28, 2005, if any portion of the property is located in the GO Zone,
September 23, 2005, if any portion of the property is located in the Rita GO Zone (but not in the GO Zone), or
October 23, 2005, if any portion of the property is located in the Wilma GO Zone (but not in the GO Zone or the Rita GO Zone);
and
Did not hold more than 500 acres of qualified timber property on the applicable date above.
See Publication 4492, Information for Taxpayers Affected by Hurricanes Katrina, Rita, and Wilma, for a list of counties and parishes included in
the GO Zone, Rita GO Zone, and Wilma GO Zone.
Waiving the 5-year carryback.
Waiving the 5-year carryback
You can choose to treat a farming loss as if it were not a farming loss. If you make this choice, the carryback period will be 2 years (3 years to
the extent the loss is an eligible loss). To make this choice, attach a statement to your 2005 income tax return filed on or before the due date
(including extensions) that you are choosing to treat any 2005 farming losses as if they were not farming losses under section 172(i)(3) of the
Internal Revenue Code. If you do not make this choice on your timely filed return, you have until 6 months after the due date of the return (excluding
extensions) to make the choice by filing an amended return. Attach a statement to your amended return and write Filed pursuant to section
301.9100-2 at the top of the statement. Send your amended return to the same address that you filed your original return. Once made, this choice
is irrevocable.
Qualified GO Zone loss.
Gulf Opportunity (GO) Zone loss
Qualified GO Zone loss
The carryback period for a qualified GO Zone loss is 5 years. Only the qualified GO Zone loss portion of the NOL can be carried back 5 years. A
qualified GO Zone loss is the smaller of:
The excess of the NOL for the year over the specified liability loss for the year to which a 10-year carryback applies, or
The total of the following deductions (to the extent they are taken into account in computing the NOL for the tax year):
Qualified GO Zone casualty loss (defined later),
Moving expenses paid or incurred after August 27, 2005, for the employment of an individual whose main home was in the GO Zone before August
28, 2005, who was unable to remain in that home because of Hurricane Katrina, and whose main job location (after the move) is in the GO
Zone,
Temporary housing expenses paid or incurred after August 27, 2005, to house employees of the taxpayer whose main job location is in the GO
Zone,
Depreciation or amortization allowable for any qualified GO Zone property (even if you elected not to claim the special GO Zone depreciation
allowance for such property) for the year placed in service, and
Repair expenses (including expenses for the removal of debris) paid or incurred after August 27, 2005, for any damage from Hurricane Katrina
to property located in the GO Zone.
See Publication 4492 for a list of counties and parishes included in the GO Zone.
To the extent the NOL is a qualified GO Zone loss, that part of the loss is carried back to the 5th tax year before the loss. Any such loss not
used in that year is carried to the 4th preceding year and then applied consecutively forward through the 1st preceding year. Any such loss not
applied in the 5 preceding years can be carried forward up to 20 years.
Qualified GO Zone casualty loss.
A qualified GO Zone casualty loss is any deductible section 1231 loss of property located in the GO Zone if the loss was caused by Hurricane
Katrina. For this purpose, the amount of the loss is reduced by any recognized gain from an involuntary conversion caused by Hurricane Katrina of
property located in the GO Zone. Any such loss taken into account in figuring your qualified GO Zone loss is not eligible for the election to be
treated as having occurred in the previous tax year.
Waiving the 5-year carryback.
Waiving the 5-year carryback
You can choose to treat a qualified GO Zone loss as if it were not a qualified GO Zone loss. If you make this choice, the loss carryback period
will be 2 years (3 years to the extent the loss is an eligible loss). To make this choice for 2005, attach to your 2005 income tax return filed by the
due date (including extensions) a statement that you are choosing to treat any 2005 qualified GO Zone losses as if they were not qualified GO Zone
losses. If you filed your original return on time, you can make this choice on an amended return filed within 6 months after the due date of the
return (including extensions). Attach a statement to your amended return, and write Filed pursuant to section 301.9100-2 at the top of the
statement. File the amended return at the same address you used for your original return. Once made, this choice is irrevocable.
Specified liability loss.
Specified liability loss
The carryback period for a specified liability loss is 10 years. Only the specified liability loss portion of the NOL can be carried back 10 years.
Generally, a specified liability loss is a loss arising from:
Product liability, or
An act (or failure to act) that occurred at least 3 years before the beginning of the loss year and resulted in a liability under a federal
or state law requiring:
Reclamation of land,
Dismantling of a drilling platform,
Remediation of environmental contamination, or
Payment under any workers compensation act.
Any loss from a liability arising from (1) through (4) above can be taken into account as a specified liability loss only if you used an accrual
method of accounting throughout the period in which the act (or failure to act) occurred. For details, see section 172(f).
Waiving the 10-year carryback.
Waiving the 10-year carryback
You can choose to treat a specified liability loss as if it were not a specified liability loss. If you make this choice, the loss carryback period
will be 2 years (3 years to the extent the loss is an eligible loss; 5 years to the extent the loss is a farming loss). To make this choice for 2005,
attach to your 2005 income tax return filed by the due date (including extensions) a statement that you are choosing to treat any 2005 specified
liability losses as if they were not specified liability losses. If you filed your original return on time, you can make this choice on an amended
return filed within 6 months after the due date of the return (excluding extensions). Attach a statement to your amended return, and write Filed
pursuant to section 301.9100-2 at the top of the statement. File the amended return at the same address you used for your original return. Once
made, this choice is irrevocable.
Waiving the Carryback Period
Waiving the carryback period
Carryback, waiving
You can choose not to carry back your NOL. If you make this choice, then you can use your NOL only in the 20-year carryforward period. (This choice
means you also choose not to carry back any alternative tax NOL.)
To make this choice, attach a statement to your original return filed by the due date (including extensions) for the NOL year. This statement must
show that you are choosing to waive the carryback period under section 172(b)(3) of the Internal Revenue Code.
If you filed your return timely but did not file the statement with it, you must file the statement with an amended return for the NOL year within
6 months of the due date of your original return (excluding extensions). Enter Filed pursuant to section 301.9100-2 at the top of the
statement.
Once you choose to waive the carryback period, it is irrevocable. If you choose to waive the carryback period for more than one NOL, you must make
a separate choice and attach a separate statement for each NOL year.
If you do not file this statement on time, you cannot waive the carryback period.
How To Carry an NOL Back or Forward
How to carry an NOL back or forward
If you choose to carry back the NOL, you must first carry the entire NOL to the earliest carryback year. If your NOL is not used up, you can carry
the rest to the next earliest carryback year, and so on.
If you do not use up the NOL in the carryback years, carry forward what remains of it to the 20 tax years following the NOL year. Start by carrying
it to the first tax year after the NOL year. If you do not use it up, carry the unused part to the next year. Continue to carry any unused part of the
NOL forward until the NOL is used up or you complete the 20-year carryforward period.
Example 1.
You started your business as a sole proprietor in 2005 and had a $42,000 NOL for the year. No part of the NOL qualifies for the 3-year, 5-year, or
10-year carryback. You begin using your NOL in 2003, the second year before the NOL year, as shown in the following chart.
Year
Carryback/
Carryover
Unused
Loss
2003
$42,000
$40,000
2004
40,000
37,000
2005 (NOL year)
2006
37,000
31,500
2007
31,500
22,500
2008
22,500
12,700
2009
12,700
4,000
2010
4,000
–0–
If your loss were larger, you could carry it forward until the year 2025. If you still had an unused 2005 carryforward after the year 2025, you
could not deduct it.
Example 2.
Assume the same facts as in Example 1, except that $4,000 of the NOL is attributable to a casualty loss and this loss qualifies for a 3-year
carryback period. You begin using the $4,000 in 2002. As shown in the following chart, $3,000 of this NOL is used in 2002. The remaining $1,000 is
carried to 2003 with the $38,000 NOL that you must begin using in 2003.
Year
Carryback/
Carryover
Unused
Loss
2002
$3,000
$1,000
2003
39,000
37,000
2004
37,000
34,000
2005 (NOL year)
2006
34,000
28,500
2007
28,500
19,500
2008
19,500
9,700
2009
9,700
1,000
2010
1,000
–0–
How To Claim
an NOL Deduction
Claiming an NOL deduction
If you have not already carried the NOL to an earlier year, your NOL deduction is the total NOL. If you carried the NOL to an earlier year, your
NOL deduction is the NOL minus the amount you used in the earlier year or years.
If you carry more than one NOL to the same year, your NOL deduction is the total of these carrybacks and carryovers.
NOL more than taxable income.
NOL more than taxable income
If your NOL is more than the taxable income of the year you carry it to (figured before deducting the NOL), you generally will have an NOL
carryover to the next year. See How To Figure an NOL Carryover, later, to determine how much NOL you have used and how much you carry to
the next year.
Deducting a Carryback
Deducting a carryback
If you carry back your NOL, you can use either Form 1045 or Form 1040X. You can get your refund faster by using Form 1045, but you have a shorter
time to file it. You can use Form 1045 to apply an NOL to all carryback years. If you use Form 1040X, you must use a separate Form 1040X for each
carryback year to which you apply the NOL.
Estates and trusts not filing Form 1045 must file an amended Form 1041 (instead of Form 1040X) for each carryback year to which NOLs are applied.
Use a copy of the appropriate year's Form 1041, check the Amended return box, and follow the Form 1041 instructions for amended returns. Include the
NOL deduction with other deductions not subject to the 2% limit (line 15a). Also, see the special procedures for filing an amended return due to an
NOL carryback, explained under Form 1040X, later.
Form 1045.
Forms and schedules:
Form 1045
You can apply for a quick refund by filing Form 1045. This form results in a tentative adjustment of tax in the carryback year. See the Form 1045
illustrated at the end of this discussion.
If the IRS refunds or credits an amount to you from Form 1045 and later determines that the refund or credit is too much, the IRS may assess and
collect the excess immediately.
Generally, you must file Form 1045 on or after the date you file your tax return for the NOL year, but not later than one year after the NOL year.
If the last day of the year falls on a Saturday, Sunday, or holiday, the form will be considered timely if postmarked on the next business day. For
example, if you are a calendar year taxpayer with a carryback from 2005 to 2003, you must file Form 1045 on or after the date you file your tax return
for 2005, but no later than January 2, 2007.
Form 1040X.
Forms and schedules:
Form 1040X
If you do not file Form 1045, you can file Form 1040X to get a refund of tax because of an NOL carryback. File Form 1040X within 3 years after the
due date, including extensions, for filing the return for the NOL year. For example, if you are a calendar year taxpayer and filed your 2002 return by
the April 15, 2003, due date, you must file a claim for refund of 2000 tax because of an NOL carryback from 2002 by April 17, 2006.
Attach a computation of your NOL using Schedule A (Form 1045) and, if it applies, your NOL carryover using Schedule B (Form 1045), discussed later.
Refiguring your tax.
Refiguring tax
To refigure your total tax liability for a carryback year, first refigure your adjusted gross income for that year. (On Form 1045, use lines 10
through 11 and the After carryback column for the applicable carryback year.) Use your adjusted gross income after applying the NOL deduction to
refigure income or deduction items that are based on, or limited to, a percentage of your adjusted gross income. Refigure the following items.
The special allowance for passive activity losses from rental real estate activities.
Taxable social security and tier 1 railroad retirement benefits.
IRA deductions.
Excludable savings bond interest.
Excludable employer-provided adoption benefits.
Student loan interest deduction.
Tuition and fees deduction.
If more than one of these items apply, refigure them in the order listed above, using your adjusted gross income after applying the NOL deduction
and any previous item. (Enter your NOL deduction on Form 1045, line 10. On line 11, using the After carryback column, enter your adjusted gross
income after applying the above refigured items but without the NOL deduction.)
Next, refigure your taxable income. (On Form 1045, use lines 12 through 15 and the After carryback column.) Use your refigured adjusted
gross income (Form 1045, line 11, using the After carryback column) to refigure certain deductions and other items that are based on or limited
to a percentage of your adjusted gross income. Refigure the following items.
The itemized deduction for medical expenses.
The itemized deduction for casualty losses.
Miscellaneous itemized deductions subject to the 2% limit.
The overall limit on itemized deductions.
The phaseout of the deduction for exemptions.
Do not refigure the itemized deduction for charitable contributions.
Finally, use your refigured taxable income (Form 1045, line 15, using the After carryback column) to refigure your total tax liability.
Refigure your income tax, your alternative minimum tax, and any credits that are based on, or limited to, the amount of tax. (On Form 1045, use lines
16 through 25, and the After carryback column.) The earned income credit, for example, may be affected by changes to adjusted gross income or
the amount of tax (or both) and, therefore, must be recomputed. If you become eligible for a credit because of the carryback, complete the form for
that specific credit (such as the EIC Worksheet) for that year.
While it is necessary to refigure your income tax, alternative minimum tax, and credits, do not refigure your self-employment tax.
Deducting a Carryforward
Deducting a carryforward
If you carry forward your NOL to a tax year after the NOL year, list your NOL deduction as a negative figure on the Other income line of Form 1040
(line 21 for 2005). Estates and trusts include an NOL deduction on Form 1041 with other deductions not subject to the 2% limit (line 15a for 2005).
You must attach a statement that shows all the important facts about the NOL. Your statement should include a computation showing how you figured
the NOL deduction. If you deduct more than one NOL in the same year, your statement must cover each of them.
Change in Marital Status
Marital status, change in
If you and your spouse were not married to each other in all years involved in figuring NOL carrybacks and carryovers, only the spouse who had the
loss can take the NOL deduction. If you file a joint return, the NOL deduction is limited to the income of that spouse.
For example, if your marital status changes because of death or divorce, and in a later year you have an NOL, you can carry back that loss only to
the part of the income reported on the joint return (filed with your former spouse) that was related to your taxable income. After you deduct the NOL
in the carryback year, the joint rates apply to the resulting taxable income.
Refund limit.
If you are not married in the NOL year (or are married to a different spouse), and in the carryback year you were married and filed a joint return,
your refund for the overpaid joint tax may be limited. You can claim a refund for the difference between your share of the refigured tax and your
contribution toward the tax paid on the joint return. The refund cannot be more than the joint overpayment. Attach a statement showing how you figured
your refund.
Figuring your share of a joint tax liability.
There are five steps for figuring your share of the refigured joint tax liability.
Figure your total tax as though you had filed as married filing separately.
Figure your spouse's total tax as though your spouse had also filed as married filing separately.
Add the amounts in (1) and (2).
Divide the amount in (1) by the amount in (3).
Multiply the refigured tax on your joint return by the amount figured in (4). This is your share of the joint tax liability.
Figuring your contribution toward tax paid.
Unless you have an agreement or clear evidence of each spouse's contributions toward the payment of the joint tax liability, figure your
contribution by adding the tax withheld on your wages and your share of joint estimated tax payments or tax paid with the return. If the original
return for the carryback year resulted in an overpayment, reduce your contribution by your share of the tax refund. Figure your share of a joint
payment or refund by the same method used in figuring your share of the joint tax liability. Use your taxable income as originally reported on the
joint return in steps (1) and (2) above, and substitute the joint payment or refund for the refigured joint tax in step (5).
Change in Filing Status
Filing status, change in
If you and your spouse were married and filed a joint return for each year involved in figuring NOL carrybacks and carryovers, figure the NOL
deduction on a joint return as you would for an individual. However, treat the NOL deduction as a joint NOL.
If you and your spouse were married and filed separate returns for each year involved in figuring NOL carrybacks and carryovers, the spouse who
sustained the loss may take the NOL deduction on a separate return.
Special rules apply for figuring the NOL carrybacks and carryovers of married people whose filing status changes for any tax year involved in
figuring an NOL carryback or carryover.
Separate to joint return.
If you and your spouse file a joint return for a carryback or carryforward year, and were married but filed separate returns for any of the tax
years involved in figuring the NOL carryback or carryover, treat the separate carryback or carryover as a joint carryback or carryover.
Joint to separate returns.
If you and your spouse file separate returns for a carryback or carryforward year, but filed a joint return for any or all of the tax years
involved in figuring the NOL carryover, figure each of your carryovers separately.
Joint return in NOL year.
Figure each spouse's share of the joint NOL through the following steps.
Figure each spouse's NOL as if he or she filed a separate return. See How To Figure an NOL, earlier. If only one spouse has an
NOL, stop here. All of the joint NOL is that spouse's NOL.
If both spouses have an NOL, multiply the joint NOL by a fraction, the numerator of which is spouse A's NOL figured in (1) and the
denominator of which is the total of the spouses' NOLs figured in (1). The result is spouse A's share of the joint NOL. The rest of the joint NOL is
spouse B's share.
Example 1.
Mark and Nancy are married and file a joint return for 2005. They have an NOL of $5,000. They carry the NOL back to 2003, a year in which Mark and
Nancy filed separate returns. Figured separately, Nancy's 2005 deductions were more than her income, and Mark's income was more than his deductions.
Mark does not have any NOL to carry back. Nancy can carry back the entire $5,000 NOL to her 2003 separate return.
Example 2.
Assume the same facts as in Example 1, except that both Mark and Nancy had deductions in 2005 that were more than their income. Figured separately,
his NOL is $1,800 and hers is $3,000. The sum of their separate NOLs ($4,800) is less than their $5,000 joint NOL because his deductions included a
$200 net capital loss that is not allowed in figuring his separate NOL. The loss is allowed in figuring their joint NOL because it was offset by
Nancy's capital gains. Mark's share of their $5,000 joint NOL is $1,875 ($5,000 × $1,800/$4,800) and Nancy's is $3,125 ($5,000 − $1,875).
Joint return in previous carryback or carryforward year.
If only one spouse had an NOL deduction on the previous year's joint return, all of the joint carryover is that spouse's carryover. If both spouses
had an NOL deduction (including separate carryovers of a joint NOL, figured as explained in the previous discussion), figure each spouse's share of
the joint carryover through the following steps.
Figure each spouse's modified taxable income as if he or she filed a separate return. See Modified taxable income under How
To Figure an NOL Carryover, later.
Multiply the joint modified taxable income you used to figure the joint carryover by a fraction, the numerator of which is spouse A's
modified taxable income figured in (1) and the denominator of which is the total of the spouses' modified taxable incomes figured in (1). This is
spouse A's share of the joint modified taxable income.
Subtract the amount figured in (2) from the joint modified taxable income. This is spouse B's share of the joint modified taxable
income.
Reduce the amount figured in (3), but not below zero, by spouse B's NOL deduction.
Add the amounts figured in (2) and (4).
Subtract the amount figured in (5) from spouse A's NOL deduction. This is spouse A's share of the joint carryover. The rest of the joint
carryover is spouse B's share.
Example.
Sam and Wanda filed a joint return for 2003 and separate returns for 2004 and 2005. In 2005, Sam had an NOL of $18,000 and Wanda had an NOL of
$2,000. They choose to carry back both NOLs 2 years to their 2003 joint return and claim a $20,000 NOL deduction.
Their joint modified taxable income (MTI) for 2003 is $15,000, and their joint NOL carryover to 2004 is $5,000 ($20,000 – $15,000). Sam and
Wanda each figure their separate MTI for 2003 as if they had filed separate returns. Then they figure their shares of the $5,000 carryover as follows.
Step 1.
Sam's separate MTI
$9,000
Wanda's separate MTI
+ 3,000
Total MTI
$12,000
Step 2.
Joint MTI
$15,000
Sam's MTI ÷ total MTI
($9,000 ÷ $12,000)
× .75
Sam's share of joint MTI
$11,250
Step 3.
Joint MTI
$15,000
Sam's share of joint MTI
− 11,250
Wanda's share of joint MTI
$3,750
Step 4.
Wanda's share of joint MTI
$3,750
Wanda's NOL deduction
− 2,000
Wanda's remaining share
$1,750
Step 5.
Sam's share of joint MTI
$11,250
Wanda's remaining share
+ 1,750
Joint MTI to be offset
$13,000
Step 6.
Sam's NOL deduction
$18,000
Joint MTI to be offset
− 13,000
Sam's carryover to 2004
$5,000
Joint carryover to 2004
$5,000
Sam's carryover
− 5,000
Wanda's carryover to 2004
$–0–
Wanda's $2,000 NOL deduction offsets $2,000 of her $3,750 share of the joint modified taxable income and is completely used up. She has no
carryover to 2004. Sam's $18,000 NOL deduction offsets all of his $11,250 share of joint modified taxable income and the remaining $1,750 of Wanda's
share. His carryover to 2004 is $5,000.
Illustrated Form 1045
Illustrated forms and schedules:
Form 1045
The following example illustrates how to use Form 1045 to claim an NOL deduction in a carryback year. It includes a filled-in page 1 of Form 1045.
Example.
Martha Sanders is a self-employed contractor. Martha's 2005 deductions are more than her 2005 income because of a business loss. She uses Form 1045
to carry back her NOL 2 years and claim an NOL deduction in 2003. (See the filled-in Form 1045 on page 11.) Her filing status in both years was
single.
Martha figures her 2005 NOL on Schedule A, Form 1045 (not shown). (For an example using Schedule A, see Illustrated Schedule A (Form 1045)
under How To Figure an NOL, earlier.) She enters the $10,000 NOL from Schedule A, line 25, on Form 1045, line 1a.
Martha completes lines 10 through 25, using the Before carryback column under the column for the second preceding tax year ended 12/31/03 on
page 1 of Form 1045 using the following amounts from her 2003 return.
2003 Adjusted gross income
$50,000
Itemized deductions:
Medical expenses
[$6,000 − ($50,000 × 7.5%)]
$2,250
State income tax
+ 2,000
Real estate tax
+ 4,000
Home mortgage interest
+ 5,000
Total itemized deductions
$13,250
Exemption
$3,050
Income tax
$5,241
Self-employment tax
$6,120
Martha refigures her taxable income for 2003 after carrying back her 2005 NOL as follows:
2003 Adjusted gross income
$50,000
Less:
NOL from 2005
−10,000
2003 Adjusted gross income after carryback
$40,000
Less:
Itemized deductions:
Medical expenses
[$6,000 − ($40,000 × 7.5%)]
$3,000
State income tax
+ 2,000
Real estate tax
+ 4,000
Home mortgage interest
+ 5,000
Total itemized deductions
−14,000
Less:
Exemption
− 3,050
2003 Taxable income after carryback
$22,950
Martha then completes lines 10 through 25, using the After carryback column under the column for the second preceding tax year ended
12/31/03. On line 10, Martha enters her $10,000 NOL deduction. Her new adjusted gross income on line 11 is $40,000 ($50,000 − $10,000). To
complete line 12, she must refigure her medical expense deduction using her new adjusted gross income. Her refigured medical expense deduction is
$3,000 [$6,000 − ($40,000 × 7.5%)]. This increases her total itemized deductions to $14,000 [$13,250 + ($3,000 − $2,250)].
Martha uses her refigured taxable income ($22,950) from line 15, and the tax tables in her 2003 Form 1040 instructions to find her income tax. She
enters the new amount, $3,096, on line 16, and her new total tax liability, $9,216, on line 25.
Martha used up her $10,000 NOL in 2003 so she does not complete a column for the first preceding tax year ended 12/31/2004. The decrease in tax
because of her NOL deduction (line 27) is $2,145.
Martha files Form 1045 after filing her 2005 return, but no later than January 2, 2007 (since December 31, 2006 is a Sunday). She mails it to the
Internal Revenue Service Center where she filed her 2005 return and attaches a copy of her 2005 return (including the applicable forms and schedules).
Form 1045 Application for Tentative Refund 2005
Summary: This is an example of Form 1045 (2005) with items included as described in the text. Additionally, these line items are
completed:
Name(s) shown on return field contains Martha Sanders
Number, street, and apartment or suite number. If a P.O. box, see page 2 of the instructions. field contains 9876 Holly
Street
City, town or post office, state, and ZIP code. If a foreign address, see page 2 of the instructions. field contains Yardley,
Pennsylvania 19067
Social security or employer identification number field contains 123-00-4567
Daytime phone number field contains (041) 123-4567
2b. Date tax return was filed field contains 3-5-2006
7. Have you filed a petition in Tax Court for the year(s) to which the carryback is to be applied? No checkbox checked
8. Is any part of the decrease in tax due to a loss or credit from a tax shelter required to be registered? No checkbox
checked
9. If you are carrying back an NOL. or net section 1256 contracts loss, did this cause the release of foreign tax credits or the release of
other credits due to the release of the foreign tax credit? See page 3 of the instructions. No checkbox checked
Under
Computation of Decrease in Tax: 2nd preceding tax year ended 12-31-03:
13. Subtract line 12 from line 11
Before carryback field contains 36,750
After carryback field contains 26,000
14. Exemptions. See page 4 of the instructions
Before carryback field contains 3,050
After carryback field contains 3,050
15. Taxable income. Line 13 minus line 14
Before carryback field contains 33,700
After carryback field contains 22,950
16. Income tax. See page 4of the instructions and attach an explanation
Before carryback field contains 5,241
After carryback field contains 3,096
18. Add lines 16 and 17
Before carryback field contains 5,241
After carryback field contains 3,096
22. Subtract line 21 from line 18
Before carryback field contains 5,241
After carryback field contains 3,096
25. Total tax. Add lines 22 through 24
Before carryback field contains 11,361
After carryback field contains 9,216
26. Enter the amount from the After carryback column on line 25 for each year field contains 9,216
27. Decrease in tax. Line 25 minus line 26 field contains 2,145
Under
Sign Here:
Your signature field contains Martha Sanders
Date field contains 4-11-2006
How To Figure
an NOL Carryover
Figuring an NOL:
Carryover
If your NOL is more than your taxable income for the year to which you carry it (figured before deducting the NOL), you may have an NOL carryover.
You must make certain modifications to your taxable income to determine how much NOL you will use up in that year and how much you can carry over to
the next tax year. Your carryover is the excess of your NOL deduction over your modified taxable income for the carryback or carryforward year. If
your NOL deduction includes more than one NOL, apply the NOLs against your modified taxable income in the same order in which you incurred them,
starting with the earliest.
Modified taxable income.
Modified taxable income
Your modified taxable income is your taxable income figured with the following changes.
You cannot claim an NOL deduction for the NOL carryover you are figuring or for any later NOL.
You cannot claim a deduction for capital losses in excess of your capital gains. Also, you must increase your taxable income by the amount
of any section 1202 exclusion claimed on Schedule D (Form 1040).
You cannot claim a deduction for your exemptions for yourself, your spouse, or dependents.
You must figure any item affected by the amount of your adjusted gross income after making the changes in (1) and (2), above, and certain
other changes to your adjusted gross income that result from (1) and (2). This includes income and deduction items used to figure adjusted gross
income (for example, IRA deductions), as well as certain itemized deductions. To figure a charitable contribution deduction, do not include deductions
for NOL carrybacks in the change in (1) but do include deductions for NOL carryforwards from tax years before the NOL year.
Your taxable income as modified cannot be less than zero.
Schedule B (Form 1045).
Forms and schedules:
Schedule B (Form 1045)
Schedule B (Form 1045)
Illustrated forms and schedules:
Schedule B (Form 1045)
You can use Schedule B (Form 1045) to figure your modified taxable income for carryback years and your carryover from each of those years. Do not
use Schedule B for a carryforward year. If your 2005 return includes an NOL deduction from an NOL year before 2005 that reduced your taxable income to
zero (to less than zero, if an estate or trust), see NOL Carryover From 2005 to 2006, later.
Illustrated Schedule B (Form 1045)
The following example illustrates how to figure an NOL carryover from a carryback year. It includes a filled-in Schedule B (Form 1045).
Example.
Ida Brown runs a small clothing shop. In 2005, she has an NOL of $36,000 that she carries back to 2003. She has no other carrybacks or carryovers
to 2003.
Ida's adjusted gross income in 2003 was $29,000, consisting of her salary of $30,000 minus a $1,000 capital loss deduction. She is single and
claimed only one personal exemption of $3,050. During that year, she gave $1,450 in charitable contributions. Her medical expenses were $2,725. She
also deducted $1,650 in taxes and $1,125 in home mortgage interest.
Her deduction for charitable contributions was not limited because her contributions, $1,450, were less than 50% of her adjusted gross income. The
deduction for medical expenses was limited to expenses over 7.5% of adjusted gross income (.075 × $29,000 = $2,175; $2,725 − $2,175 =
$550). The deductions for taxes and home mortgage interest were not subject to any limits. She was able to claim $4,775 ($1,450 + $550 + $1,650 +
$1,125) in itemized deductions for 2003. She had no other deductions in 2003. Her taxable income for the year was $21,175.
Ida's $36,000 carryback will reduce her 2003 taxable income to zero. She completes the column for the second preceding tax year ended 12/31/03 of
Schedule B (Form 1045) to figure how much of her NOL she uses up in 2003 and how much she can carry over to 2004. See the illustrated Schedule B shown
on page 12. Ida does not complete the column for the first preceding tax year ended 12/31/04 because the $10,700 carryover to 2004 is completely used
up that year. (See the information for line 9 below.)
Line 1. Ida enters $36,000, her 2005 net operating loss, on line 1.
Line 2. She enters $21,175, her 2003 taxable income, on line 2.
Line 3. Ida enters her net capital loss deduction of $1,000 on line 3.
Line 5. Although Ida's entry on line 3 modifies her adjusted gross income, that does not affect any other items included in her adjusted
gross income. Ida enters zero on line 5.
Line 6. Ida had itemized deductions and entered $1,000 on line 3, so she completes lines 10 through 34 to figure her adjustment to
itemized deductions. On line 6, she enters the total adjustment from line 34.
Line 10. Ida's adjusted gross income for 2003 was $29,000.
Line 11. She adds lines 3 through 5 and enters $1,000 on line 11. (This is her net capital loss deduction added back, which modifies her
adjusted gross income.)
Line 12. Her modified adjusted gross income for 2003 is now $30,000.
Line 13. On her 2003 tax return, she deducted $550 as medical expenses.
Line 14. Her actual medical expenses were $2,725.
Line 15. She multiplies her modified adjusted gross income, $30,000, by .075. She enters $2,250 on line 15.
Line 16. The difference between her actual medical expenses and the amount she is allowed to deduct is $475.
Line 17. The difference between her medical deduction and her modified medical deduction is $75. She enters this on line 17.
Line 18. She enters her modified adjusted gross income of $30,000 on line 18.
Line 19. She had no other carrybacks to 2003 and enters zero on line 19.
Line 20. Her modified adjusted gross income remains $30,000.
Line 21. Her actual contributions for 2003 were $1,450, which she enters on line 21.
Line 22. She now refigures her charitable contributions based on her modified adjusted gross income. Her contributions are well below
the 50% limit, so she enters $1,450 on line 22.
Line 23. The difference is zero.
Lines 24 through 33. Ida had no casualty losses or deductions for miscellaneous items in 2003 so she leaves these lines blank.
Line 34. She combines lines 17, 23, 28, and 33 and enters $75 on line 34. She carries this figure to line 6.
Line 7. Ida enters the deduction for her personal exemption of $3,050 for 2003.
Line 8. After combining lines 2 through 7, Ida's modified taxable income is $25,300.
Line 9. Ida figures her carryover to 2004 by subtracting her modified taxable income (line 8) from her NOL deduction (line 1). She
enters the $10,700 carryover on line 9. She also enters the $10,700 as her NOL deduction for 2004 on Form 1045, page 1, line 10, in the After
carryback column under the column for the first preceding tax year ended 12/31/04. (For an illustrated example of page 1 of Form 1045, see
Illustrated Form 1045 under How To Claim an NOL Deduction earlier.)
Form 1045 (2005) Page 3
Summary: This is an example of Form 1045 (2005), page 3, with items included as described in the text.
Form 1045 (2005) Page 4
Summary: This is an example of Form 1045 (2005), page 4, with items included as described in the text.
NOL Carryover From 2005 to 2006
If you had an NOL deduction carried forward from a year prior to 2005 that reduced your taxable income on your 2005 return to zero (to less than
zero, if an estate or trust), complete Table 1, Worksheet for NOL Carryover From 2005 to 2006. It will help you figure your NOL to carry to 2006. Keep
the worksheet for your records.
Worksheet Instructions
Carryover from 2005 to 2006:
Worksheet instructions
Worksheet:
Carryover from 2005 to 2006
At the top of the worksheet, enter the NOL year for which you are figuring the carryover.
More than one NOL.
If your 2005 NOL deduction includes amounts for more than one loss year, complete this worksheet only for one loss year. To determine which year,
start with your earliest NOL and subtract each NOL separately from your taxable income figured without the NOL deduction. Complete this worksheet for
the earliest NOL that reduces your taxable income below zero. Your NOL carryover to 2006 is the total of the amount on line 10 of the worksheet and
all later NOL amounts.
Example.
Your taxable income for 2005 is $4,000 without your $9,000 NOL deduction. Your NOL deduction includes a $2,000 carryover from 2003 and a $7,000
carryover from 2004. Subtract your 2003 NOL of $2,000 from $4,000. This gives you taxable income of $2,000. Your 2003 NOL is now completely used up.
Subtract your $7,000 2004 NOL from $2,000. This gives you taxable income of ($5,000). You now complete the worksheet for your 2004 NOL. Your NOL
carryover to 2006 is the unused part of your 2004 NOL from line 10 of the worksheet.
Line 2.
Treat your NOL deduction for the NOL year entered at the top of the worksheet and later years as a positive amount. Add it to your negative taxable
income. Enter the result on line 2.
Line 6.
You must refigure the following income and deductions based on adjusted gross income.
The special allowance for passive activity losses from rental real estate activities.
Taxable social security and tier 1 railroad retirement benefits.
IRA deduction.
Excludable savings bond interest.
Excludable employer-provided adoption benefits.
Student loan interest deduction.
Tuition and fees deduction.
If none of these items apply to you, enter zero on line 6. Otherwise, increase your adjusted gross income by the total of lines 3 through 5 and
your NOL deduction for the NOL year entered at the top of the worksheet and later years. Using this increased adjusted gross income, refigure the
items that apply, in the order listed above. Your adjustment for each item is the difference between the refigured amount and the amount included on
your return. Combine the adjustments for previous items with your adjusted gross income before refiguring the next item. Keep a record of your
computations.
Enter your total adjustments for the above items on line 6.
Line 7.
Enter zero if you claimed the standard deduction. Otherwise, use lines 11 through 42 of the worksheet to figure the amount to enter on this line.
Complete only those sections that apply to you.
Estates and trusts.
Carryover from 2004 to 2005:
Estates and trusts
Enter zero on line 7 if you did not claim any miscellaneous deductions on Form 1041, line 15b, or a casualty or theft loss. Otherwise, refigure
these deductions by substituting modified adjusted gross income (see below) for adjusted gross income. Subtract the recomputed deductions from those
claimed on the return. Enter the result on line 7.
Modified adjusted gross income.
To refigure miscellaneous itemized deductions of an estate or trust (Form 1041, line 15b), modified adjusted gross income is the total of the
following amounts.
The adjusted gross income on the return.
The amounts from lines 3 through 5 of the worksheet.
The exemption amount from Form 1041, line 20.
The NOL deduction for the NOL year entered at the top of the worksheet and for later years.
To refigure the casualty and theft loss deduction of an estate or trust, modified adjusted gross income is the total of the following amounts.
The adjusted gross income amount you used to figure the deduction claimed on the return.
The amounts from lines 3 through 5 of the worksheet.
The NOL deduction for the NOL year entered at the top of the worksheet and for later years.
Line 11.
Treat your NOL deduction for the NOL year entered at the top of the worksheet and for later years as a positive amount. Add it to your adjusted
gross income. Enter the result on line 11.
Line 20.
If you had a contributions carryover from 2004 to 2005 and your NOL deduction includes an amount from an NOL year before 2004, you may have to
reduce your contributions carryover. This reduction is any adjustment you made to your 2004 charitable contributions deduction when figuring your NOL
carryover to 2005. Use the reduced contributions carryover to figure the amount to enter on line 20.
Table 1. Worksheet for NOL. Carryover From 2005 to 2006 (For an NOL. Year Before 2005)
Summary: This is an example of the worksheet used to figure the net operating loss carryover from 2005 to 2006. A Note on the bottom of the
form states:
If you choose to waive the carryback period, and instead you choose to only carry your 2005 NOL. forward, use Schedule A, Form 1045 to compute
your 2005 NOL. that will be carried over to 2006. Report your 2005 NOL. from line 25, Schedule A, Form 1045 on the other income line of Form 1040 or
the line on Form 1041 for deductions NOT subject to the 2% floor in 2006. The line items to be completed are:
NOL. YEAR field
Under
Use Your 2005 Form 1040 (or Form 1041) to Complete This Worksheet:
1. Enter as a positive number your NOL. deduction for the NOL. year entered above from line 21 (Form 1040) or line 15a (Form 1041)
field
2. Enter your taxable income without the NOL. deduction for 2005 (See instructions.) field
3. Enter as a positive number any net capital loss deduction field
4. Enter as a positive number any gain excluded on the sale or exchange of qualified small business stock field
5. Enter the amount of any domestic production activities deductionfield
6. Enter any adjustments to your adjusted gross income (see instructions) field
7. Enter any adjustments to your itemized deductions from line 38 or line 42 (see instructions) field
8. Enter your deduction for exemptions from line 42 (Form 1040) or line 20 (Form 1041) field
9. Modified taxable income. Combine lines 2 through 8. Enter the result (but not less than zero) field
10. NOL. carryover to 2006. Subtract line 9 from line 1. Enter the result (but not less than zero) here and on the other income line of Form
1040 (or the line on Form 1041 for deductions NOT subject to the 2% floor) in 2006 field
Under
Adjustments to Itemized Deductions (Individuals Only):
11. Enter your adjusted gross income without the NOL. deduction for the NOL. year entered above or later years. (See instructions.)
field
12. Combine lines 3, 4, 5, and 6 above field
13. Modified adjusted gross income. Combine lines 11 and 12 above field
Under
Adjustment to Medical Expenses:
14. Enter your medical expenses from Schedule A (Form 1040), line 4 field
15. Enter your medical expenses from Schedule A (Form 1040), line 1 field
16. Multiply line 13 above by 7.5% (.075) field
17. Subtract line 16 from line 15. Enter the result (but not less than zero) field
18. Subtract line 17 from line 14 field
Under
Adjustment to Charitable Contributions:
19. Enter your charitable contributions deduction from Schedule A (Form 1040), line 18 field
20. Refigure your charitable contributions deduction using line 132 above as your adjusted gross income. (See instructions.)
field
21. Subtract line 20 from line 19 field
Under
Adjustment to Casualty and Theft Losses:
22. Enter your casualty and theft losses from Form 4684, line 20 field
23. Enter your casualty and theft losses from Form 4684, line 18 field
24. Multiply line 13 above by 10% (.10) field
25. Subtract line 24 from line 23. Enter the result (but not less than zero) field
26. Subtract line 25 from line 22 field
Under
Adjustment to Miscellaneous Deductions:
27. Enter your miscellaneous deductions from Schedule A (Form 1040), line 26 field
28. Enter your miscellaneous deductions from Schedule A (Form 1040), line 23 field
29. Multiply line 13 above by 2% (.02) field
30. Subtract line 29 from line 28. Enter the result (but not less than zero) field
31. Subtract line 30 from line 27 field
Under
Tentative Total Adjustment:
32. Combine lines 18, 21, 26, and 31, and enter the result here. If line 13 above is $145,950 or less ($72,975 or less if married filing
separately), also enter the result on line 7 above and stop here. Otherwise, go to line 33
field
Table 1. (Continued)
Summary: This is the continuation of the worksheet to determine the net operating loss carryover from 2005 to 2006. The line items to be
completed are:
Under
Adjustment to Overall Itemized Limit:
33. Enter the amount on Schedule A (Form 1040), line 28 field
34. Add lines 17, 20, 25, and 30, and the amounts on Schedule A (Form 1040), lines 9, 14, and 27 field
35. Add lines 17 and 25, the amount on Schedule A (Form 1040), line 13, and any gambling losses included on Schedule A (Form 1040), line
27 field
36. Subtract line 35 from line 34. If the result is zero, enter the amount from line 32 on line 7above and stop here. Otherwise, go to line
37 field
37. Multiply line 36 by 80% (.80) field
38. Subtract $145,950 ($72,975 if married filing separately) from the amount on line 13 field
39. Multiply line 38 by 3% (.03) field
40. Enter the smaller of line 37 or line 39 field
41. Subtract line 40 from line 34. Enter the result (but not less than your standard deduction amount) field
42. Subtract line 41 from line 33. Enter the result here and on line 6
field
More information
Tax help
Free tax services
Tax help
Help
Tax help
Assistance
Tax help
Publications
Tax help
TTY/TDD informationHow To Get Tax Help
More information
Tax help
Free tax services
Tax help
Help
Tax help
Assistance
Tax help
Publications
Tax help
TTY/TDD information
You can get help with unresolved tax issues, order free publications and forms, ask tax questions, and get information from the IRS in several
ways. By selecting the method that is best for you, you will have quick and easy access to tax help.
Contacting your Taxpayer Advocate.
Taxpayer Advocate
If you have attempted to deal with an IRS problem unsuccessfully, you should contact your Taxpayer Advocate.
The Taxpayer Advocate independently represents your interests and concerns within the IRS by protecting your rights and resolving problems that
have not been fixed through normal channels. While Taxpayer Advocates cannot change the tax law or make a technical tax decision, they can clear up
problems that resulted from previous contacts and ensure that your case is given a complete and impartial review.
To contact your Taxpayer Advocate:
Call the Taxpayer Advocate toll free at
1-877-777-4778.
Call, write, or fax the Taxpayer Advocate office in your area.
Call 1-800-829-4059 if you are a
TTY/TDD user.
Visit
www.irs.gov/advocate.
For more information, see Publication 1546, How To Get Help With Unresolved Tax Problems (now available in Chinese, Korean, Russian, and
Vietnamese, in addition to English and Spanish).
Free tax services.
To find out what services are available, get Publication 910, IRS Guide to Free Tax Services. It contains a list of free tax publications and an
index of tax topics. It also describes other free tax information services, including tax education and assistance programs and a list of TeleTax
topics.
Internet. You can access the IRS website 24 hours a day, 7 days a week, at
www.irs.gov to:
E-file your return. Find out about commercial tax preparation and e-file services available free to eligible
taxpayers.
Check the status of your 2005 refund. Click on Where's My Refund. Be sure to wait at least 6 weeks from the date you filed your
return (3 weeks if you filed electronically). Have your 2005 tax return available because you will need to know your social security number, your
filing status, and the exact whole dollar amount of your refund.
Download forms, instructions, and publications.
Order IRS products online.
Research your tax questions online.
Search publications online by topic or keyword.
View Internal Revenue Bulletins (IRBs) published in the last few years.
Figure your withholding allowances using our Form W-4 calculator.
Sign up to receive local and national tax news by email.
Get information on starting and operating a small business.
Phone. Many services are available by phone.
Ordering forms, instructions, and publications. Call 1-800-829-3676 to order current-year forms, instructions, and publications
and prior-year forms and instructions. You should receive your order within 10 days.
Asking tax questions. Call the IRS with your tax questions at 1-800-829-1040.
Solving problems. You can get face-to-face help solving tax problems every business day in IRS Taxpayer Assistance Centers. An
employee can explain IRS letters, request adjustments to your account, or help you set up a payment plan. Call your local Taxpayer Assistance Center
for an appointment. To find the number, go to
www.irs.gov/localcontacts or
look in the phone book under United States Government, Internal Revenue Service.
TTY/TDD equipment. If you have access to TTY/TDD equipment, call 1-800-829-4059 to ask tax questions or to order forms and
publications.
TeleTax topics. Call 1-800-829-4477 and press 2 to listen to pre-recorded messages covering various tax topics.
Refund information. If you would like to check the status of your 2005 refund, call 1-800-829-4477 and press 1 for automated
refund information or call 1-800-829-1954. Be sure to wait at least 6 weeks from the date you filed your return (3 weeks if you filed electronically).
Have your 2005 tax return available because you will need to know your social security number, your filing status, and the exact whole dollar amount
of your refund.
Evaluating the quality of our telephone services. To ensure that IRS representatives give accurate, courteous, and professional answers,
we use several methods to evaluate the quality of our telephone services. One method is for a second IRS representative to sometimes listen in on or
record telephone calls. Another is to ask some callers to complete a short survey at the end of the call.
Walk-in. Many products and services are available on a walk-in basis.
Products. You can walk in to many post offices, libraries, and IRS offices to pick up certain forms, instructions, and
publications. Some IRS offices, libraries, grocery stores, copy centers, city and county government offices, credit unions, and office supply stores
have a collection of products available to print from a CD-ROM or photocopy from reproducible proofs. Also, some IRS offices and libraries have the
Internal Revenue Code, regulations, Internal Revenue Bulletins, and Cumulative Bulletins available for research purposes.
Services. You can walk in to your local Taxpayer Assistance Center every business day for personal, face-to-face tax help. An
employee can explain IRS letters, request adjustments to your tax account, or help you set up a payment plan. If you need to resolve a tax problem,
have questions about how the tax law applies to your individual tax return, or you're more comfortable talking with someone in person, visit your
local Taxpayer Assistance Center where you can spread out your records and talk with an IRS representative face-to-face. No appointment is necessary,
but if you prefer, you can call your local Center and leave a message requesting an appointment to resolve a tax account issue. A representative will
call you back within 2 business days to schedule an in-person appointment at your convenience. To find the number, go to
www.irs.gov/localcontacts or
look in the phone book under United States Government, Internal Revenue Service.
Mail. You can send your order for forms, instructions, and publications to the address below and receive a response within 10 business
days after your request is received.
National Distribution Center
P.O. Box 8903
Bloomington, IL 61702-8903
CD-ROM for tax products. You can order Publication 1796, IRS Tax Products CD-ROM, and obtain:
A CD that is released twice so you have the latest products. The first release ships in late December and the final release ships in late
February.
Current-year forms, instructions, and publications.
Prior-year forms, instructions, and publications.
Tax Map: an electronic research tool and finding aid.
Tax law frequently asked questions (FAQs).
Tax Topics from the IRS telephone response system.
Fill-in, print, and save features for most tax forms.
Internal Revenue Bulletins.
Toll-free and email technical support.
Buy the CD-ROM from National Technical Information Service (NTIS) at
www.irs.gov/cdorders for $25 (no handling fee) or call 1-877-233-6767 toll free to buy the CD-ROM for $25 (plus a $5 handling fee).
CD-ROM for small businesses. Publication 3207, The Small Business Resource Guide CD-ROM for 2005, has a new look and enhanced navigation
features. This year's CD includes:
Helpful information, such as how to prepare a business plan, find financing for your business, and much more.
All the business tax forms, instructions, and publications needed to successfully manage a business.
Tax law changes for 2005.
IRS Tax Map to help you find forms, instructions, and publications by searching on a keyword or topic.
Web links to various government agencies, business associations, and IRS organizations.
Rate the Product survey—your opportunity to suggest changes for future editions.
An updated version of this CD is available each year in early April. You can get a free copy by calling 1-800-829-3676 or by visiting
www.irs.gov/smallbiz.
Tax Publications for Individual Taxpayers and Commonly Used Tax Forms
Summary: This is a listing of tax publications and commonly used tax forms. The text states:
Tax Publications for Individual Taxpayers
See How to Get Tax Help for a variety of ways to get publications, including by computer, phone, and mail.
General Guides
1--Your Rights as a Taxpayer
17--Your Federal Income Tax (For Individuals)
334--Tax Guide for Small Business (For Individuals Who Use Schedule C or C-EZ)
509--Tax Calendars for 2004
553--Highlights of 2003 Tax Changes
910--Guide to Free Tax Services
Specialized Publications
3--Armed Forces' Tax Guide
54--Tax Guide for U.S. Citizens and Residents Aliens Abroad
225--Farmer's Tax Guide
378--Fuel Tax Credits and Refunds
463--Travel, Entertainment, Gift, and Car Expenses
501--Exemptions, Standard Deduction, and Filing Information
502--Medical and Dental Expenses
503--Child and Dependent Care Expenses
504--Divorced or Separated Individuals
505--Tax Withholding and Estimated Tax
508--Tax Benefits for Work-Related Education
514--Foreign Tax Credit for Individuals
516--U.S. Government Civilian Employees Stationed Abroad
517--Social Security and Other Information for Members of the Clergy and Religious Workers
519--U.S. Tax Guide for Aliens
520--Scholarships and Fellowships
521--Moving Expenses
523--Selling Your Home
524--Credit for the Elderly or the Disabled
525--Taxable and Nontaxable Income
526--Charitable Contributions
527--Residential Rental Property
529--Miscellaneous Deductions
530--Tax Information for First-Time Homeowners
531--Reporting Tip Income
533--Self-Employment Tax
534--Depreciating Property Placed in Service Before 1987
536--Net Operating Losses for Individuals, Estates, and Trusts
537--Installment Sales
541--Partnerships
544--Sales and Other Dispositions of Assets
547--Casualties, Disasters, and Thefts
550--Investment Income and Expenses
551--Basis of Assets
552--Recordkeeping for Individuals
554--Older Americans' Tax Guide
555--Community Property
556--Examination of Returns, Appeal Rights, and Claims for Refund
559--Survivors, Executors, and Administrators
561--Determining the Value of Donated Property
564--Mutual Fund Distributions
570--Tax Guide for Individuals With Income From U.S. Possessions
571--Tax-Sheltered Annuity Plans (403(b) Plans)
575--Pension and Annuity Income
584--Casualty, Disaster, and Theft Loss Workbook (Personal-Use Property)
587--Business Use of Your Home (Including Use by Day-Care Providers)
590--Individual Retirement Arrangements (I.R.A.s)
593--Tax Highlights for U.S. Citizens and Residents Going Abroad
594--The I.R.S. Collection Process
595--Tax Highlights for Commercial Fishermen
596--Earned Income Credit EIC.)
721--Tax Guide to U.S. Civil Service Retirement Benefits
901--U.S. Tax Treaties
907--Tax Highlights for Persons with Disabilities
908--Bankruptcy Tax Guide
911--Direct Sellers
915--Social Security and Equivalent Railroad Retirement Benefits
919--How Do I Adjust My Tax Withholding?
925--Passive Activity and At-Risk Rules
926--Household Employer's Tax Guide
929--Tax Rules for Children and Dependents
936--Home Mortgage Interest Deduction
946--How to Depreciate Property
947--Practice Before the I.R.S. and Power of Attorney
950--Introduction to Estate and Gift Taxes
967--I.R.S. Will Figure Your Tax
968--Tax Benefits for Adoption
969--Medical Savings Accounts (MSAs)
970--Tax Benefits for Education
971--Innocent Spouse Relief
972--Child Tax Credit (For Individuals Sent Here From the Form 1040 or 1040A Instructions)
1542--Per Diem Rates
1544--Reporting Cash Payments of Over $10,000
1546--The Taxpayer Advocate Service of the I.R.S.
Spanish Language Publications
1SP--Derechos del Contribuyente
579SP Cómo Preparar la Declaración de Impuesto Federal
594SP Comprendiendo el Proceso de Cobro
596SP Crédito por Ingreso del Trabajo
850 English-Spanish Glossary of Words and Phrases Used in Publications Issued by the Internal Revenue Service
1544SP Informe de Pagos en Efectivo en Exceso de $10,000 (Recibidos en una Ocupación o Negocio)
Commonly Used Tax Forms
See How To Get Tax Help for a variety of ways to get forms, including by computer, fax, phone, and mail. For fax orders only, use the catalog
number when ordering.
| Form Number and Title |
Catalog Number |
| 1040--U.S. Individual Income Tax Return |
11320 |
| Schedule A&B--Itemized Deductions & Interest and Ordinary Dividends |
11330 |
| Schedule C--Profit or Loss From Business |
11334 |
| Schedule C-EZ--Net Profit From Business |
14374 |
| Schedule D--Capital Gains and Losses |
11338 |
| Schedule D-1--Continuation Sheet for Schedule D |
10424 |
| Schedule E--Supplemental Income and Loss |
11344 |
| Schedule EIC.--Earned Income Credit |
13339 |
| Schedule F--Profit or Loss From Farming |
11346 |
| Schedule H--Household Employment Taxes |
12187 |
| Schedule J--Farm Income Averaging |
25513 |
| Schedule R--Credit for the Elderly or the Disabled |
11359 |
| Schedule SE--Self-Employment Tax |
11358 |
| 1040A--U.S. Individual Income Tax Return |
11327 |
| Schedule 1--Interest and Ordinary Dividends for Form 1040A Filers |
12075 |
| Schedule 2--Child and Dependent Care Expenses for Form 1040A Filers |
10749 |
| Schedule 3--Credit for the Elderly or the Disabled for Form 1040A Filers |
12064 |
| 1040EZ--Income Tax Return for Single and Joint Filers With No Dependents |
11329 |
| 1040-ES--Estimated Tax for Individuals |
11340 |
| 1040X--Amended U.S. Individual Income Tax Return |
11360 |
| 2106--Employee Business Expenses |
11700 |
| 2106-EZ--Unreimbursed Employee Business Expenses |
20604 |
| 2210--Underpayment of Estimated Tax by Individuals, Estates, and Trusts |
11744 |
| 2441--Child and Dependent Care Expenses |
11862 |
| 2848--Power of Attorney and Declaration of Representative |
11980 |
| 3903--Moving Expenses |
12490 |
| 4562--Depreciation and Amortization |
12906 |
| 4868--Application for Automatic Extension of Time To File U.S. Individual Income Tax Return |
13141 |
| 4952--Investment Interest Expense Deduction |
13177 |
| 5329--Additional Taxes on Qualified Plans (including I.R.A.s) and Other Tax-Favored Accounts |
13329 |
| 6251--Alternative Minimum Tax--Individuals |
13600 |
| 8283--Non-cash Charitable Contributions |
62299 |
| 8582--Passive Activity Loss Limitations |
63704 |
| 8606--Nondeductible I.R.A.s |
63966 |
| 8812--Additional Child Tax Credit |
10644 |
| 8822--Change of Address |
12081 |
| 8829--Expenses for Business Use of Your Home |
13232 |
| 8863--Education Credits |
25379 |
| 9465--Installment Agreement Request |
14842 |
|
