Publication 536 |
2000 Tax Year |
When To Use an NOL
Generally, 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 carry it forward only. See Waiving the carryback period,
later. The "NOL year" is the year in which the NOL
occurred. You cannot deduct any part of the NOL remaining after the
20-year carryforward period.
Exceptions to 2-year carryback rule.
Eligible losses and farming losses qualify for longer carryback
periods.
Eligible loss.
The carryback period for an eligible loss is 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 or a farming business (defined later).
Only farming losses that are attributable to Presidentially
declared disasters in tax years that began after August 5, 1997, and
before January 1, 1998, are considered "eligible losses" subject
to a 3-year carryback period. Otherwise, all farming losses
are considered "farming losses" subject to a 5-year carryback
period.
Farming loss.
The carryback period for a farming loss is 5 years. A farming loss
is the smaller of:
- The amount which 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.
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.
To make this choice, attach a statement to your 2000 income tax return
filed on or before the due date (including extensions) that you are
choosing to treat any 2000 farming losses as if they were not farming
losses under section 172(i)(3) of the Internal Revenue Code. Also, if
you filed your return timely without making that choice, you may still
make the choice by filing an amended return within 6 months of the due
date of the return (excluding extensions). Attach a statement to your
amended return and write "Filed pursuant to section 301.9100-2"
on the statement. File your amended return at the same address that
you filed your original return. Once you make this choice, it is
irrevocable.
Note.
A waiver of the 5-year carryback for a farming loss would make the
loss subject to the normal 2-year carryback rule. If, however, you
choose not to carry back any of your farming loss, you need to attach
a statement to your 2000 income tax return clearly identifying what
carryback or carrybacks are being completely waived and stating that
you are waiving them under sections 172(b)(3) and 172(i)(3) of the
Internal Revenue Code.
Farming business.
A farming business is a trade or business involving the cultivation
of land, the raising or harvesting of any agricultural or
horticultural commodity, operating a nursery or sod farm, the 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.
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.
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 tax return filed by
the due date (including extensions) for the NOL year or to an amended
return for the NOL year filed within 6 months of the due date of your
original return (excluding extensions). 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 do not file this statement on time, you cannot waive the
carryback period. 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). Write "Filed pursuant to section
301.9100-2" on the statement.
Once you make this choice, you cannot change it because 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.
How to use the NOL.
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 2 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 until you complete the 20-year
carryforward period.
Example 1.
You started your business as a sole proprietor in 2000 and had a
$42,000 NOL for the year. No part of the NOL qualifies for the 3-year
or 5-year carryback period. You begin using your NOL in 1998, the
second year before the NOL year, as shown in the following chart.
Year |
Carryback/
Carryover |
Unused
Loss |
1998 |
$42,000 |
$40,000 |
1999 |
40,000 |
37,000 |
2000 (NOL year) |
|
|
2001 |
37,000 |
31,500 |
2002 |
31,500 |
22,500 |
2003 |
22,500 |
12,700 |
2004 |
12,700 |
4,000 |
2005 |
4,000 |
-0- |
If your loss were larger, you could carry it forward until the year
2020. If you still had an unused 2000 carryforward after the year
2020, 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 1997. As shown
in the following chart, $3,000 of this NOL is used in 1997. The
remaining $1,000 is carried to 1998 along with the $38,000 NOL that
you must begin using in 1998.
Year |
Carryback/
Carryover |
Unused
Loss |
1997 |
$3,000 |
$1,000 |
1998 |
39,000 |
37,000 |
1999 |
37,000 |
34,000 |
2000 (NOL year) |
|
|
2001 |
34,000 |
28,500 |
2002 |
28,500 |
19,500 |
2003 |
19,500 |
9,700 |
2004 |
9,700 |
1,000 |
2005 |
1,000 |
-0- |
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