Publication 536 - Main Content


NOL Steps

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 amount appears on the line below:
  • Individuals — Form 1040, line 41, or Form 1040NR, line 39.

  • Estates and trusts — see the instructions for Form 1041, line 22, for information about taxable income and NOLs.

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.

How To Figure an NOL

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.

  • Any deduction for personal exemptions.

  • Capital losses in excess of capital gains.

  • The section 1202 exclusion of the gain from the sale or exchange of qualified small business stock.

  • Nonbusiness deductions in excess of nonbusiness income.

  • The net operating loss deduction.

  • The domestic production activities deduction.

Form 1045, Schedule A.   Use Form 1045, Schedule A, to figure an NOL. The following discussion explains Schedule A.

  First, complete Form 1045, 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 Form 1045, 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:
  • Alimony paid,

  • Deductions for contributions to an IRA or a self-employed retirement plan,

  • Health savings account deduction,

  • Archer medical savings account deduction,

  • Most itemized deductions (except for casualty and theft losses, state income tax on trade and business income, and any employee business expenses), and

  • The standard deduction.

  Do not include on line 6 the deduction for personal exemptions for you, your spouse, or your dependents.

  Do not enter business deductions on line 6. These are deductions that are connected to your trade or business. They include the following.
  • State income tax on income attributable to trade or business (including wages, salary, and unemployment compensation).

  • Moving expenses.

  • Educator expenses.

  • The deduction for the deductible part of self-employed health insurance.

  • Domestic production activities deduction.

  • Rental losses.

  • Loss on the sale or exchange of business real estate or depreciable property.

  • Your share of a business loss from a partnership or an S corporation.

  • Ordinary loss on the sale or exchange of stock in a small business corporation or a small business investment company.

  • 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).

  • Loss on the sale of accounts receivable (if you use an accrual method of accounting).

  • Interest and litigation expenses on state and federal income taxes related to your business.

  • Unrecovered investment in a pension or annuity claimed on a decedent's final return.

  • 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, unemployment compensation included in your gross 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.

Form 1045, Schedule A Example

The following example describes how to figure an NOL.

Example.

Glenn Johnson is in the retail record business. He is single and has the following income and deductions on his Form 1040 for 2014.

INCOME  
Wages from part-time job $1,225
Interest on savings 425
Net long-term capital gain on sale of real estate used in business 2,000
Glenn's total income $3,650

DEDUCTIONS  
Net loss from business (gross income of $67,000 minus expenses of $72,000) $5,000
Net short-term capital loss 
on sale of stock
1,000
Standard deduction 6,200
Personal exemption 3,950
Glenn's total deductions $16,150

Glenn's deductions exceed his income by $12,500 ($16,150 − $3,650). However, to figure whether he has an NOL, certain deductions are not allowed. He uses Form 1045, Schedule A, to figure his NOL.

The following items are not allowed on Form 1045, Schedule A.

Nonbusiness net short-term capital loss $1,000
Nonbusiness deductions 
(standard deduction, $6,200) minus 
nonbusiness income (interest, $425)
5,775
Deduction for personal exemption 3,950
Total adjustments to net loss $10,725
   

Therefore, Glenn's NOL for 2014 is figured as follows:

Glenn's total 2014 income $3,650
Less:    
Glenn's original 2014 total deductions $16,150  
Reduced by the disallowed items − 10,725 − 5,425
Glenn's NOL for 2014 $1,775

When To Use an NOL

Generally, if you have an NOL for a tax year ending in 2014, 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 disaster losses, and specified liability losses, all defined next, 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:
  • Is from a casualty or theft, or

  • Is attributable to a federally declared disaster for a qualified small business or certain qualified farming businesses.

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.

  An eligible loss does not include a farming loss or a qualified disaster loss.

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:
  1. 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

  2. The NOL for the tax year.

Farming business.   A farming business is a trade or business involving cultivation of land or the raising or harvesting of any agricultural or horticultural commodity. A farming business can include operating a nursery or sod farm or raising or harvesting most ornamental trees or trees bearing fruit, nuts, or other crops. 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 entirely by someone else.

Waiving the 5-year carryback.   You can choose to figure the carryback period for a farming loss without regard to the special 5-year carryback rule. To make this choice for 2014, attach to your 2014 income tax return filed by the due date (including extensions) a statement that you are choosing to treat any 2014 farming losses without regard to the special 5-year carryback rule. If you filed your original return on time but did not file the statement with it, you can make this choice on an amended return filed within 6 months after the due date of the return (excluding extensions). Attach an election statement to your amended return, and write “Filed pursuant to section 301.9100-2” at the top of the statement. Once made, this choice is irrevocable.

Qualified disaster loss.   The carryback period for a qualified disaster loss is 5 years. Only the qualified disaster loss portion of the NOL can be carried back 5 years. A qualified disaster loss is the smaller of:
  1. The sum of:

    1. Any losses attributable to a federally declared disaster and occurring before January 1, 2010, in the disaster area, plus

    2. Any qualified disaster expenses that were allowable under section 198A (even if you did not choose to treat those expenses as deductions in the current year), or

  2. The NOL for the tax year.

Excluded losses.   A qualified disaster loss does not include any losses from property used in connection with any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, or any store for which the principal business is the sale of alcoholic beverages for consumption off premises.

  A qualified disaster loss also does not include any losses from any gambling or animal racing property. Gambling or animal racing property is any equipment, furniture, software, or other property used directly in connection with gambling, the racing of animals, or the on-site viewing of such racing, and the portion of any real property (determined by square footage) that is dedicated to gambling, the racing of animals, or the on-site viewing of such racing, unless this portion is less than 100 square feet.

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:
  • Product liability and expenses incurred in the investigation or settlement of, or opposition to, product liability claims, or

  • An act (or failure to act) that occurred at least 3 years before the beginning of the loss year and resulted in a liability under a federal or state law requiring:

  1. Reclamation of land,

  2. Dismantling of a drilling platform,

  3. Remediation of environmental contamination, or

  4. 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 2014 attach to your 2014 income tax return filed by the due date (including extensions) a statement that you are choosing to treat any 2014 specified liability losses without regard to the special 10-year carryback rule. If you filed your original return on time but did not file the statement with it, 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. 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).

If you filed your original return on time but did not file the statement with it, you can make this choice on an amended return filed 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” at the top of the statement.

Once you choose to waive the carryback period, it generally 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 waive the carryback period or do not use up the NOL in the carryback period, carry forward what remains of the NOL 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 2014 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 2012, the second year before the NOL year, as shown in the following chart.

Year   Carryback/ 
Carryover
Unused 
Loss
2012 $42,000 $40,000
2013 40,000 37,000
2014 (NOL year)    
2015 37,000 31,500
2016 31,500 22,500
2017 22,500 12,700
2018 12,700 4,000
2019 4,000 -0-

If your loss were larger, you could carry it forward until the year 2034. If you still had an unused 2014 carryforward after the year 2034, you would not be allowed to 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 2011. As shown in the following chart, $3,000 of this NOL is used in 2011. The remaining $1,000 is carried to 2012 with the $38,000 NOL that you must begin using in 2012.

Year   Carryback/ 
Carryover
Unused 
Loss
2011 $4,000 $1,000
2012 39,000 37,000
2013 37,000 34,000
2014 (NOL year)    
2015 34,000 28,500
2016 28,500 19,500
2017 19,500 9,700
2018 9,700 1,000
2019 1,000 -0-

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 carried over NOL minus the NOL 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 resulting in no 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 that do not file 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.

  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 end of the NOL year. If the last day of the NOL 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 2014 to 2012, you must file Form 1045 on or after the date you file your tax return for 2014, but no later than December 31, 2015.

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. Generally, file Form 1040X for the carryback year 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, you must generally file a claim for refund because of an NOL carryback from 2012 by April 15, 2016 (3 years after the due date for the NOL return).

  
Filing Form 1040X does not extend the carryback period. See When to Use an NOL, earlier.

  Attach a computation of your NOL using Form 1045, Schedule A, and, if it applies, your NOL carryover using Form 1045, Schedule B, 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.
  1. The special allowance for passive activity losses from rental real estate activities.

  2. Taxable social security and tier 1 railroad retirement benefits.

  3. IRA deductions.

  4. Excludable savings bond interest.

  5. Excludable employer-provided adoption benefits.

  6. The student loan interest deduction.

  7. The 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 refigured after applying the NOL deduction and after refiguring any above items.)

  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 qualified mortgage insurance premiums.

  • The itemized deduction for casualty losses.

  • Miscellaneous itemized deductions subject to the 2% limit.

  • The overall limit on itemized deductions (does not apply to carryback years beginning after December 31, 2009 and before January 1, 2013).

  • The phaseout of the deduction for exemptions (does not apply to carryback years beginning after December 31, 2009 and before January 1, 2013).

  • Qualified motor vehicle tax (does not apply to carryback years beginning after December 31, 2009).

  
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 by your adjusted gross income (AGI), modified adjusted gross income (MAGI), or tax liability. (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.

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 or Form 1040NR (line 21 for 2014). Estates and trusts include an NOL deduction on Form 1041 with other deductions not subject to the 2% limit (line 15a for 2014).

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.
  1. Figure your total tax as though you had filed as married filing separately.

  2. Figure your spouse's total tax as though your spouse had also filed as married filing separately.

  3. Add the amounts in (1) and (2).

  4. Divide the amount in (1) by the amount in (3).

  5. 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.
  1. 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.

  2. 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 2014. They have an NOL of $5,000. They carry the NOL back to 2012, a year in which Mark and Nancy filed separate returns. Figured separately, Nancy's 2014 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 2012 separate return.

Example 2.

Assume the same facts as in Example 1 , except that both Mark and Nancy had deductions in 2014 that were more than their income. Figured separately, his NOL is $1,800 and her NOL 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.
  1. 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.

  2. 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.

  3. Subtract the amount figured in (2) from the joint modified taxable income. This is spouse B's share of the joint modified taxable income.

  4. Reduce the amount figured in (3), but not below zero, by spouse B's NOL deduction.

  5. Add the amounts figured in (2) and (4).

  6. 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 2012 and separate returns for 2013 and 2014. In 2014, Sam had an NOL of $18,000 and Wanda had an NOL of $2,000. They choose to carry back both NOLs 2 years to their 2012 joint return and claim a $20,000 NOL deduction.

Their joint modified taxable income (MTI) for 2012 is $15,000, and their joint NOL carryover to 2013 is $5,000 ($20,000 – $15,000). Sam and Wanda each figure their separate MTI for 2012 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 2013 $5,000
Joint carryover to 2013 $5,000
Sam's carryover − 5,000
Wanda's carryover to 2013 $-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 2013. 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 2013 is $5,000.

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.
  1. You cannot claim an NOL deduction for the NOL carryover you are figuring or for any later NOL.

  2. 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.

  3. You cannot claim the domestic production activities deduction.

  4. You cannot claim a deduction for your exemptions for yourself, your spouse, or dependents.

  5. You must figure any item affected by the amount of your adjusted gross income after making the changes in (1), (2), and (3), above, and certain other changes to your adjusted gross income that result from (1), (2), and (3). 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.

Form 1045, Schedule B.   You can use Form 1045, Schedule B, to figure your modified taxable income for carryback years and your carryover from each of those years. Do not use Form 1045, Schedule B, for a carryforward year. If your 2014 return includes an NOL deduction from an NOL year before 2014 that reduced your taxable income to zero (to less than zero, if an estate or trust), see NOL Carryover From 2014 to 2015 , later.

NOL Carryover From 2014 to 2015

If you had an NOL deduction carried forward from a year prior to 2014 that resulted in your having taxable income on your 2014 return of zero (of less than zero, if an estate or trust), complete Table 1 , Worksheet for NOL Carryover From 2014 to 2015, on the following pages. It will help you figure your NOL to carry to 2015. Keep the worksheet for your records.

Worksheet Instructions

At the top of the worksheet, enter the NOL year for which you are figuring the carryover.

More than one NOL.   If your 2014 NOL deduction includes amounts for more than one loss year, complete this worksheet only for one loss year. To determine which year, start with your earliest NOL and subtract each NOL separately from your taxable income figured without the NOL deduction. Complete this worksheet for the earliest NOL that results in your having taxable income below zero. Your NOL carryover to 2015 is the total of the amount on line 10 of the worksheet and all later NOL amounts.

Example.

Your taxable income for 2014 is $5,000 without your $9,000 NOL deduction. Your NOL deduction includes a $2,000 carryover from 2012 and a $7,000 carryover from 2013. Subtract your 2012 NOL of $2,000 from $5,000. This gives you taxable income of $3,000. Your 2012 NOL is now completely used up. Subtract your $7,000 2013 NOL from $3,000. This gives you taxable income of ($4,000). You now complete the worksheet for your 2013 NOL. Your NOL carryover to 2015 is the unused part of your 2013 NOL from line 10 of the worksheet.

Line 2.   Treat your NOL deduction for the NOL year entered at the top of the worksheet and later years as a positive amount. Add it to your negative taxable income (figured without the NOL deduction). Enter the result on line 2.

Line 6.   You must refigure the following income and deductions based on adjusted gross income.
  1. The special allowance for passive activity losses from rental real estate activities.

  2. Taxable social security and tier 1 railroad retirement benefits.

  3. IRA deductions.

  4. Excludable savings bond interest.

  5. Excludable employer-provided adoption benefits.

  6. The student loan interest deduction.

  7. The tuition and fees deduction.

  If none of these items apply to you, enter zero on line 6. Otherwise, increase your adjusted gross income by the total of lines 3 through 5 and your NOL deduction for the NOL year entered at the top of the worksheet and later years. Using this increased adjusted gross income, refigure the items that apply, in the order listed above. Your adjustment for each item is the difference between the refigured amount and the amount included on your return. Combine the adjustments for previous items with your adjusted gross income before refiguring the next item. Keep a record of your computations.

  Enter your total adjustments for the above items on line 6.

Line 7.   Enter zero if you claimed the standard deduction and the amounts on lines 3 through 5 are zero. Otherwise, use lines 11 through 33 of the worksheet to figure the amount to enter on this line. Complete only those sections that apply to you.

Estates and trusts.   Enter zero on line 7 if you did not claim any miscellaneous deductions on Form 1041, line 15c, or a casualty or theft loss. Otherwise, refigure these deductions by substituting modified adjusted gross income (see below ) for adjusted gross income. Subtract the recomputed deductions from those claimed on the return. Enter the result on line 7.

Modified adjusted gross income.   To refigure miscellaneous itemized deductions of an estate or trust (Form 1041, line 15c), modified adjusted gross income is the total of the following amounts.
  • The adjusted gross income on the return.

  • The amounts from lines 3 through 5 of the worksheet.

  • The exemption amount from Form 1041, line 20.

  • The NOL deduction for the NOL year entered at the top of the worksheet and for later years.

  To refigure the casualty and theft loss deduction of an estate or trust, modified adjusted gross income is the total of the following amounts.
  • The adjusted gross income amount you used to figure the deduction claimed on the return.

  • The amounts from lines 3 through 5 of the worksheet.

  • The NOL deduction for the NOL year entered at the top of the worksheet and for later years.

Line 11.   Treat your NOL deduction for the NOL year entered at the top of the worksheet and for later years as a positive amount. Add it to your adjusted gross income. Enter the result on line 11.

Line 20.   Is your modified adjusted gross income from line 13 of this worksheet more than $100,000 ($50,000 if married filing separately)?

  □ Yes. Your deduction is limited. Refigure your deduction using the Mortgage Insurance Premiums Deduction Worksheet in the 2014 Instructions for Form 1045. On line 2 of the Mortgage Insurance Premiums Deduction Worksheet, enter the amount from line 13 of this worksheet.

  □ No. Your deduction is not limited. Enter the amount from line 19 on line 20 and enter -0- on line 21.

Line 23.   If you had a contributions carryover from 2013 to 2014 and your NOL deduction includes an amount from an NOL year before 2013, you may have to reduce your contributions carryover. Reduce the contributions carryover by the amount of any adjustment you made to your 2013 charitable contributions deduction when figuring your NOL carryover to 2014. Use the reduced contributions carryover to figure the amount to enter on line 23.

This image is too large to be displayed in the current screen. Please click the link to view the image.

Worksheet for NOL Carryover

Worksheet for NOL Carryover (Continued)

How To Get Tax Help

Do you need help with a tax issue or preparing your tax return, or do you need a free publication or form?

Preparing and filing your tax return.    Find free options to prepare and file your return on IRS.gov or in your local community if you qualify.
  • Go to IRS.gov and click on the Filing tab to see your options.

  • Enter “Free File” in the search box to use brand name software to prepare and e-file your federal tax return for free.

  • Enter “VITA” in the search box, download the free IRS2Go app, or call 1-800-906-9887 to find the nearest Volunteer Income Tax Assistance or Tax Counseling for the Elderly (TCE) location for free tax preparation.

  • Enter “TCE” in the search box, download the free IRS2Go app, or call 1-888-227-7669 to find the nearest Tax Counseling for the Elderly location for free tax preparation.

  The Volunteer Income Tax Assistance (VITA) program offers free tax help to people who generally make $53,000 or less, persons with disabilities, the elderly, and limited-English-speaking taxpayers who need help preparing their own tax returns. The Tax Counseling for the Elderly (TCE) program offers free tax help for all taxpayers, particularly those who are 60 years of age and older. TCE volunteers specialize in answering questions about pensions and retirement-related issues unique to seniors.

Getting answers to your tax law questions.    IRS.gov and IRS2Go are ready when you are—24 hours a day, 7 days a week.
  • Enter “ITA” in the search box on IRS.gov for the Interactive Tax Assistant, a tool that will ask you questions on a number of tax law topics and provide answers. You can print the entire interview and the final response.

  • Enter “Tax Map” or “Tax Trails” in the search box for detailed information by tax topic.

  • Enter “Pub 17” in the search box to get Pub. 17, Your Federal Income Tax for Individuals, which features details on tax-saving opportunities, 2014 tax changes, and thousands of interactive links to help you find answers to your questions.

  • Call TeleTax at 1-800-829-4477 for recorded information on a variety of tax topics.

  • Access tax law information in your electronic filing software.

  • Go to IRS.gov and click on the Help & Resources tab for more information.

Tax forms and publications.    You can download or print all of the forms and publications you may need on www.irs.gov/formspubs. Otherwise, you can:
  • Go to www.irs.gov/orderforms to place an order and have forms mailed to you, or

  • Call 1-800-829-3676 to order current-year forms, instructions, publications, and prior-year forms and instructions (limited to 5 years).

You should receive your order within 10 business days.

Where to file your tax return.   
  • There are many ways to file your return electronically. It’s safe, quick and easy. See Preparing and filing your tax return, earlier, for more information.

  • See your tax return instructions to determine where to mail your completed paper tax return.

Getting a transcript or copy of a return.   
  • Go to IRS.gov and click on “Get Transcript of Your Tax Records” under “Tools.

  • Download the free IRS2Go app to your smart phone and use it to order transcripts of your tax returns or tax account.

  • Call the transcript toll-free line at 1-800-908-9946.

  • Mail Form 4506-T or Form 4506T-EZ (both available on IRS.gov).

Using online tools to help prepare your return.   Go to IRS.gov and click on the Tools bar to use these and other self-service options.

Understanding identity theft issues.   

Checking on the status of a refund.   
  • Go to www.irs.gov/refunds.

  • Download the free IRS2Go app to your smart phone and use it to check your refund status.

  • Call the automated refund hotline at 1-800-829-1954.

Making a tax payment.   You can make electronic payments online, by phone, or from a mobile device. Paying electronically is safe and secure. The IRS uses the latest encryption technology and does not store banking information. It’s easy and secure and much quicker than mailing in a check or money order. Go to IRS.gov and click on the Payments tab or the “Pay Your Tax Bill” icon to make a payment using the following options.
  • Direct Pay (only if you are an individual who has a checking or savings account).

  • Debit or credit card.

  • Electronic Federal Tax Payment System.

  • Check or money order.

What if I can’t pay now?    Click on the Payments tab or the “Pay Your Tax Bill” icon on IRS.gov to find more information about these additional options.
  • An online payment agreement determines if you are eligible to apply for an installment agreement if you cannot pay your taxes in full today. With the needed information, you can complete the application in about 30 minutes, and get immediate approval.

  • An offer in compromise allows you to settle your tax debt for less than the full amount you owe. Use the Offer in Compromise Pre-Qualifier to confirm your eligibility.

Checking the status of an amended return.    Go to IRS.gov and click on the Tools tab and then Where’s My Amended Return?

Understanding an IRS notice or letter.    Enter “Understanding your notice” in the search box on IRS.gov to find additional information about your IRS notice or letter.

Visiting the IRS.    Locate the nearest Taxpayer Assistance Center using the Office Locator tool on IRS.gov. Enter “office locator” in the search box. Or choose the “Contact Us” option on the IRS2Go app and search Local Offices. Before you visit, use the Locator tool to check hours and services available.

Watching IRS videos.    The IRS Video portal www.irsvideos.gov contains video and audio presentations on topics of interest to individuals, small businesses, and tax professionals. You’ll find video clips of tax topics, archived versions of live panel discussions and Webinars, and audio archives of tax practitioner phone forums.

Getting tax information in other languages.    For taxpayers whose native language is not English, we have the following resources available.
  1. Taxpayers can find information on IRS.gov in the following languages.

  2. The IRS Taxpayer Assistance Centers provide over-the-phone interpreter service in over 170 languages, and the service is available free to taxpayers.

The Taxpayer Advocate Service Is Here To Help You

What is the Taxpayer Advocate Service?

The Taxpayer Advocate Service (TAS) is an independent organization within the Internal Revenue Service that helps taxpayers and protects taxpayer rights. Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights under the Taxpayer Bill of Rights.

What Can the Taxpayer Advocate Service Do For You?

We can help you resolve problems that you can’t resolve with the IRS. And our service is free. If you qualify for our assistance, you will be assigned to one advocate who will work with you throughout the process and will do everything possible to resolve your issue. TAS can help you if:

  • Your problem is causing financial difficulty for you, your family, or your business,

  • You face (or your business is facing) an immediate threat of adverse action, or

  • You’ve tried repeatedly to contact the IRS but no one has responded, or the IRS hasn’t responded by the date promised.

How Can You Reach Us?

We have offices in every state, the District of Columbia, and Puerto Rico. Your local advocate’s number is in your local directory and at www.taxpayeradvocate.irs.gov. You can also call us at 1-877-777-4778.

How Can You Learn About Your Taxpayer Rights?

The Taxpayer Bill of Rights describes ten basic rights that all taxpayers have when dealing with the IRS. Our Tax Toolkit at www.taxpayeradvocate.irs.gov can help you understand what these rights mean to you and how they apply. These are your rights. Know them. Use them.

How Else Does the Taxpayer Advocate Service Help Taxpayers?

TAS works to resolve large-scale problems that affect many taxpayers. If you know of one of these broad issues, please report it to us at www.irs.gov/sams.

Low Income Taxpayer Clinics

Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. To find a clinic near you, visit www.irs.gov/litc or see IRS Publication 4134, Low Income Taxpayer Clinic List.


More Online Publications