Publication 536 |
2000 Tax Year |
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.
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 1998 and 1999). 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.
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 2000 to 1998, you must file Form 1045 on or after the
date you file your tax return for 2000, but no later than December 31,
2001.
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 1997 return by the April 15, 1998, due date, you must file
a claim for refund of 1995 tax because of an NOL carryback from 1997
by April 16, 2001. (Since April 15, 2001, falls on a Sunday, the due
date is extended to April 16, 2001).
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.
- Certain miscellaneous itemized deductions.
- 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 Schedule EIC) 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 2000). Estates and trusts include an
NOL deduction on Form 1041 with other deductions not subject to the 2%
limit (line 15a for 2000).
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 a joint return (filed
with your former spouse) that was 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. Figure it from the
joint NOLs.
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 in 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 2000. They
have an NOL of $5,000. They carry the NOL back to 1998, a year in
which Mark and Nancy filed separate returns. Figured separately,
Nancy's 2000 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 1998 separate
return.
Example 2.
Assume the same facts as in Example 1, except that both Mark and
Nancy had deductions in 2000 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 x $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 in 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 1998 and separate returns
for 1999 and 2000. In 2000, Sam had an NOL of $18,000 and Wanda had an
NOL of $2,000. They carry back both NOLs to their 1998 joint return
and claim a $20,000 NOL deduction.
Their joint modified taxable income (MTI) for 1998 is $15,000, and
their joint NOL carryover to 1999 is $5,000 ($20,000 - $15,000).
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 x total MTI
($9,000 x $12,000) |
x .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 1999 |
$5,000 |
Joint carryover to 1999 |
$5,000 |
Sam's carryover |
- 5,000 |
Wanda's carryover to 1999 |
$-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 1999. 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 1999 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 2000
deductions are more than her 2000 income because of a business loss.
She uses Form 1045 to carry back her NOL and claim an NOL deduction in
1998. (See the filled in Form 1045 included here.) Her filing status
in both years was "single."
Martha figures her 2000 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
12/31/98" on page 1 of Form 1045 using the following amounts from
her 1998 return.
1998 Adjusted gross income |
$50,000 |
Itemized deductions: |
Medical expenses
[$6,000 - ($50,000 x 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 |
$2,700 |
Income tax |
$6,246 |
Self-employment tax |
$6,120 |
Martha refigures her taxable income for 1998 after carrying back
her 2000 NOL as follows:
1998 Adjusted gross income |
$50,000 |
Less: |
NOL from 2000 |
-10,000 |
2000 Adjusted gross income after carryback |
$40,000 |
Less: |
Itemized deductions: |
Medical expenses
[$6,000 - ($40,000 x 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 |
- 2,700 |
1998 Taxable income after carryback |
$23,300 |
Martha then completes lines 10 through 26, using the "After
carryback" column under the column labeled, "2nd preceding tax
year ended 12/31/98." 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 x 7.5%)]. This increases her total deductions to
$14,000 [$13,250 + ($3,000 - $2,250)].
Martha uses her refigured taxable income ($23,300) from line 16,
and the tax tables in her 1998 Form 1040 instructions to find her
income tax. She enters the new amount, $3,499, on line 17, and her new
total tax liability, $9,619, on line 26.
Since Martha used up her $10,000 NOL in 1998, she does not complete
a column for the first preceding tax year ended 12/31/99. The decrease
in tax because of her NOL deduction (line 28) is $2,747.
Martha files Form 1045 after filing her 2000 return, but no later
than December 31, 2001. She mails it to the Internal Revenue Service
Center where she filed her 2000 return and attaches a copy of her 2000
return (including the applicable forms and schedules).
Form 1045, page 1
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