Publication 536 |
2000 Tax Year |
How To Figure 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.
Your modified taxable income is your taxable income figured with
the following changes.
- You cannot claim an NOL deduction for the NOL whose
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 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).
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 2000 return includes an NOL deduction from an NOL year before
2000 that reduced your taxable income to zero (to less than zero, if
an estate or trust), see NOL Carryover From 2000 to 2001,
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 2000, she has an NOL of
$36,000 that she chooses to carry back to 1998. She has no other
carrybacks or carryovers to 1998.
Ida's adjusted gross income in 1998 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 $2,700. 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 x $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 1998. She had no other deductions in 1998. Her taxable income for
the year was $21,525.
Ida's $36,000 carryback will reduce her 1998 taxable income to
zero. She completes the column labeled "2nd preceding tax year ended
12/31/98," of Schedule B (Form 1045) to figure how much of her NOL
she uses up in 1998 and how much she can carry over to 1999. See the
illustrated Schedule B shown here. Ida does not complete the column
for the first preceding tax year ended 12/31/99 because the $10,700
carryover to 1999 is completely used up that year. (See the
information for line 9, below.)
Line 1. Ida enters $36,000, her 2000 net operating loss,
on line 1.
Line 2. She enters $21,525, her 1998 taxable income, on
line 2.
Line 3. Ida enters on line 3 her net capital loss
deduction of $1,000.
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. Since Ida had itemized deductions and entered
$1,000 on line 3, 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 1998 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 1998 is
now $30,000.
Line 13. On her 1998 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 1998 and enters
zero on line 19.
Line 20. Her modified adjusted gross income remains
$30,000.
Line 21. Her actual contributions for 1998 were $1,450,
which she enters on line 21.
Line 22. She now refigures her charitable contributions
based on her modified adjusted gross income. Since she is well below
the 50% limit, she enters $1,450 on line 22.
Line 23. The difference is zero.
Lines 24 through 33. Since Ida had no casualty losses or
deductions for miscellaneous items in 1998, 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 her personal exemption of $2,700 for
1998.
Line 8. After combining lines 2 through 7, Ida's
modified taxable income is $25,300.
Line 9. Ida figures her carryover to 1999 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 this
$10,700 as her NOL deduction for 1999 on line 11 of page 1, Form 1045,
in the "After carryback" column under the column labeled "1st
preceding tax year ended 12/31/99." (For an illustrated example of
page 1 of Form 1045, see Illustrated Form 1045 under
How To Claim an NOL Deduction, earlier.)
Form 1045, page 3
Form 1045, page 4
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