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.**
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

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 for 1999 and 2000). Also, see the special procedures for filing
an amended return due to an NOL carryback, explained under *Form 1040X, *later.

**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.
For example, if you are a calendar year taxpayer with a carryback from 2001 to 1999, you must file Form 1045 on or after the date you file your tax
return for 2001, but no later than December 31, 2002.

**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 1998 return by
the April 15, 1999, due date, you must file a claim for refund of 1996 tax because of an NOL carryback from 1998 by April 15, 2002.

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.**
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 12 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.

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. (On line 10 of Form 1045, using the After carryback column, enter your adjusted gross income after applying the above refigured
items but without the NOL deduction. Enter your NOL deduction on line 11.)

Next, refigure your taxable income. (On Form 1045, use lines 13 through 16 and the After carryback column.) Use your refigured adjusted gross
income (line 12 of Form 1045, 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 (line 16 of Form 1045, 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 17
through 26, 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

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 2001). Estates and trusts include an NOL deduction on Form 1041 with other deductions not subject to the 2% limit (line 15a for
2001).

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

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

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 2001. They have an NOL of $5,000. They carry the NOL back to 1999, a year in which Mark and
Nancy filed separate returns. Figured separately, Nancy's 2001 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 1999 separate return.

*Example 2.*
Assume the same facts as in Example 1, except that both Mark and Nancy had deductions in 2001 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 1999 and separate returns for 2000 and 2001. In 2001, Sam had an NOL of $18,000 and Wanda had an NOL of
$2,000. They carry back both NOLs to their 1999 joint return and claim a $20,000 NOL deduction.

Their joint modified taxable income (MTI) for 1999 is $15,000, and their joint NOL carryover to 2000 is $5,000 ($20,000 - $15,000). Sam and
Wanda each figure their separate MTI for 1999 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 2000 |
$5,000 |

Joint carryover to 2000 |
$5,000 |

Sam's carryover |
__- 5,000__ |

Wanda's carryover to 2000 |
$-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 2000. 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 2000 is $5,000.

#### Illustrated 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 2001 deductions are more than her 2001 income because of a business loss. She uses Form 1045
to carry back her NOL and claim an NOL deduction in 1999. (See the filled-in Form 1045 on page 10.) Her filing status in both years was
*single.*

Martha figures her 2001 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 line 27 of Schedule A on line 1a of page 1 of Form 1045.

Martha completes lines 10 through 26, using the *Before carryback* column under the column labeled *2nd preceding tax year ended
*

12/31/99 on page 1 of Form 1045 using the following amounts from her 1999 return.

1999 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 |
$2,750 |

Income tax |
$6,180 |

Self-employment tax |
$6,120 |

Martha refigures her taxable income for 1999 after carrying back her 2001 NOL as follows:

1999 Adjusted gross income |
$50,000 |

Less: |

NOL from 2001 |
__ -10,000__ |

1999 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 |
- 2,750 |

1999 Taxable income after carryback |
$23,250 |

Martha then completes lines 10 through 26, using the After carryback column under the column labeled 2nd preceding tax year ended

12/31/99. On line 11, Martha enters her $10,000 NOL deduction. Her new adjusted gross income on line 12, is $40,000 ($50,000 - $10,000). To
complete line 13, 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 deductions to $14,000 [$13,250 + ($3,000 - $2,250)].

Martha uses her refigured taxable income ($23,250) from line 16, and the tax tables in her 1999 Form 1040 instructions to find her income tax. She
enters the new amount, $3,491, on line 17, and her new total tax liability, $9,611, on line 26.

Martha used up her $10,000 NOL in 1999 so she does not complete a column for the first preceding tax year ended 12/31/2000. The decrease in tax
because of her NOL deduction (line 28) is $2,689.

Martha files Form 1045 after filing her 2001 return, but no later than December 31, 2002. She mails it to the Internal Revenue Service Center where
she filed her 2001 return and attaches a copy of her 2001 return (including the applicable forms and schedules).

Form 1045, page 1