| Pub. 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts |
2006 Tax Year |
Publication 536 - Main Contents
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, or Form 1040NR, line 38. |
| 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.
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.
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Any deduction for personal exemptions.
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Capital losses in excess of capital gains.
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The section 1202 exclusion of 50% of the gain from the sale or exchange of qualified small business stock.
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Nonbusiness deductions in excess of nonbusiness income.
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Net operating loss deduction.
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The domestic production activities deduction.
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:
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Alimony,
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Contributions to an IRA or other self-employed retirement plan,
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Health savings account deduction,
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Archer MSA deduction,
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Itemized deductions (except for casualty and theft losses, state income tax on business profits, and any employee business
expenses),
and
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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.
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State income tax on business profits.
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Moving expenses.
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Educator expenses.
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The deduction of one-half of your self-employment tax or your deduction for self-employed health insurance.
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Domestic production activities deduction.
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Rental losses.
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Loss on the sale or exchange of business real estate or depreciable property.
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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.
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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).
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Loss on the sale of accounts receivable (if you use an accrual method of accounting).
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Interest and litigation expenses on state and federal income taxes related to your business.
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Unrecovered investment in a pension or annuity claimed on a decedent's final return.
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Payment by a federal employee to buy back sick leave used in an earlier year.
Nonbusiness income (line 7).
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).
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 (line 23).
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).
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)
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 2006.
Form 1040 U.S. Individual Income Tax Return 2006. Summary: This is an example of Form 1040 (2006) completed as pertains to the example in the text. The completed line items
are:
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Under
“Label Here”:
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“Your first name and initial” field contains Glenn M.
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“Last name” field contains Johnson
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“Your social security number” field contains 765-00-4321
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“Home address (number and street). If you have a P.O. box, see page 16” field contains 5603 East Main Street
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“City, town or post office, state, and ZIP code. If you have a foreign address, see page 16.” field contains Anytown, Virginia
20000
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Under
“Presidential Election Campaign”:
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“Do you, or your spouse if filing a joint return, want $3 to go to this fund? You--Yes” checkbox
checked
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Under
“Filing Status”:
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“Single” checkbox checked
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Under
“Exemptions”:
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“6a. Yourself. If someone can claim you as a dependent, do not check box 6a” checkbox checked
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“Number of boxes checked on 6a and 6b” field contains 1
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“6d. Total number of exemptions claimed” field contains 1
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Under
“Income”:
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“7. Wages, salaries, tips, etcetera. Attach Form(s) W-2” field contains 1,225
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“8a. Taxable interest. Attach Schedule B if required” field contains 425
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“12. Business income or (loss). Attach Schedule C or C-EZ” field contains negative 5,000
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“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)
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“22. Add the amounts in the far right column for lines 7 through 21. This is your total income” field contains negative
2,350
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Under
“Adjusted Gross Income”:
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“37. Subtract line 36 from line 22. This is your adjusted gross income” field contains negative
2,350
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Form 1040 (2006) Page 2. Summary: This is an example of Form 1040 (2006), page 2 as pertains to the text. The completed line items are:
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Under
“Tax and Credits”:
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“38. Amount from line 37 (adjusted gross income)” field contains negative 2,350
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“40. Itemized deductions (from Schedule A) or your standard deduction (see left margin)” field contains 5,150
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“41. Subtract line 40 from line 38” field contains negative 7,500
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“42. If line 38 is over $109,475 or you provide housing to a person displaced by Hurricane Katrina, see page 37. Otherwise,
multiply $3,300 by
the total number of exemptions claimed on line 6d.” field contains 3,300
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“43. Taxable income. Subtract line 42 from line 41. If line 42 is more than line 41, enter 0” field contains
0
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Under
“Sign Here”:
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“Your signature” field contains Glenn M. Johnson
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“Date” field contains 2-4-2007
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“Your occupation” field contains Self-employed
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Form 1045 (2006) Page 2. Summary: This is an example of Form 1045 (2006), 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.
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“1.Enter the amount from your 2006 Form 1040, line 41, or Form 1040NR, line 38,minus any amount on Form 8914, line 6. Estates
and trusts, enter
taxable income increased by the amount of the charitable deduction, income distribution, and exemption amount” field contains negative
7,500
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“2. Nonbusiness capital losses before limitation. Enter as a positive number” field contains 1,000
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“3. Nonbusiness capital gains (without regard to any section 1202 exclusion)” field is blank
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“4. If line 2 is more than line 3, enter the difference; otherwise, enter 0” field contains 1,000
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“5. If line 3 is more than line 2, enter the difference; otherwise, enter 0” field contains 0
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“6. Nonbusiness deductions. See page 5 of the instructions” field contains 5,150
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“7. Nonbusiness income other than capital gains. See page 5 of the instructions” field contains 425
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“8. Add lines 5and 7” field contains 425
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“9. If line 6 is more than line 8, enter the difference; otherwise, enter 0” field contains 4,725
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“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
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“11. Business capital losses before limitation. Enter as a positive number” field is blank
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“12. Business capital gains (without regard to any section 1202 exclusion)” field contains 2,000
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“13. Add lines 10 and 12” field contains 2,000
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“14. Subtract line 13 from line 11. If zero or less, enter 0” field contains 0
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“15. Add lines 4 and 14” field contains 1,000
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“18. Subtract line 17 from line 16. If zero or less, enter 0” field contains 0
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“20. If line 18 is more than line 19, enter the difference; otherwise, enter 0” field contains 0
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“21. If line 19 is more than line 18, enter the difference; otherwise, enter 0” field contains 0
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“22. Subtract line 20 from line 15. If zero or less, enter 0” field contains 1,000
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“23. Domestic production activities deduction from Form 1040, line 35, or Form 1040NR, line 33 (or included on Form 1041, line
15a)”
field contains 0
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“24. NOL. deduction for losses from other years. Enter as a positive number” field contains 0
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“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
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Glenn's deductions exceed his income by $10,800 ($14,450 - $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).
Therefore, Glenn's NOL for 2006 is figured as follows:
Generally, if you have an NOL for a tax year ending in 2006, 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.
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.
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:
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Is from a casualty or theft, or
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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.
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.
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:
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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
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The NOL for the tax year.
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.
Income and deductions attributable to qualified timber property (defined below) 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.
However, these rules apply only to a timber producer who:
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Held qualified timber property on the applicable date below:
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August 28, 2005, if any portion of the property is located in the GO Zone,
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September 23, 2005, if any portion of the property is located in the Rita GO Zone (but not in the GO Zone), or
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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
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Did not hold more than 500 acres of qualified timber property on the applicable date above.
Qualified timber property is property that contains trees in significant commercial quantities. It can be a woodlot or other site that
you own or lease. The property qualifies only if it meets all the following requirements.
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It is located in the United States.
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It is held for the growing and cutting of timber you will either use in, or sell for use in, the commercial production of
timber
products.
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It consists of at least one acre planted with tree seedlings in the manner normally used in forestation or reforestation.
Qualified timber property does not include property on which you have planted shelter belts or ornamental trees, such
as Christmas trees.
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.
You can choose to figure the carryback period for a farming loss without regard to the special 5-year carry back rule.
To make this choice for
2006, attach to your 2006 income tax return filed by the due date (including extensions) a statement that you are choosing
to treat any 2006 farming
losses without regard to the special 5-year carryback rule. 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.
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:
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The excess of the NOL for the year over the specified liability loss for the year to which a 10-year carryback applies, or
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The total of the following deductions (to the extent they are taken into account in computing the NOL for the tax year):
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Qualified GO Zone casualty loss (defined later),
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Moving expenses paid or incurred 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,
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Temporary housing expenses paid or incurred to house employees of the taxpayer whose main job location is in the GO Zone,
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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
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Repair expenses (including expenses for the removal of debris) paid or incurred 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.
You can choose to figure the carryback period for a qualified GO Zone loss without regard to the special 5-year carryback
rule. To make this choice
for 2006, attach to your 2006 income tax return filed by the due date (including extensions) a statement that you are choosing
to treat any 2006
qualified GO Zone losses without regard to the special 5-year carryback rule. 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.
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:
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Reclamation of land,
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Dismantling of a drilling platform,
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Remediation of environmental contamination, or
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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.
You can choose to figure the carryback period for a specified liability loss without regard to the special 10-year
carryback rule. To make this
choice for 2006, attach to your 2006 income tax return filed by the due date (including extensions) a statement that you are
choosing to treat any
2006 specified liability losses without regard to the special 10-year carryback rule. 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
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
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 2006 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 2004, the second year before the NOL year, as shown in the following chart.
If your loss were larger, you could carry it forward until the year 2026. If you still had an unused 2006 carryforward after
the year 2026, 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 2003. As shown in the following chart, $3,000 of this NOL is used in 2003.
The remaining $1,000 is
carried to 2004 with the $38,000 NOL that you must begin using in 2004.
How To Claim 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.
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.
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.
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 2006 to 2004, you must file Form 1045 on or after the date
you file your tax return
for 2006, but no later than December 31, 2007.
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 2003 return by
the April 15, 2004, due date, you must file a claim for refund of 2001 tax because of an NOL carryback from 2003 by April
17, 2007.
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 and
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.
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The special allowance for passive activity losses from rental real estate activities.
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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.
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
or Form 1040NR (line 21 for 2006). Estates and trusts include an NOL deduction on Form 1041 with other deductions not subject
to the 2% limit (line
15a for 2006).
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.
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).
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 separa |
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