- Publication 536 - Introductory Material
- Publication 536 - Main Content
- NOL Steps
- How To Figure an NOL
- Form 1045, Schedule A.
- Nonbusiness deductions (line 6).
- Nonbusiness income (line 7).
- Adjustment for section 1202 exclusion (line 17).
- Adjustments for capital losses (lines 1922).
- Nonbusiness capital losses.
- Business capital losses.
- Domestic production activities deduction (line 23).
- NOLs from other years (line 24).
- Form 1045, Schedule A Example
- When To Use an NOL
- NOL year.
- Exceptions to 2-Year Carryback Rule
- Eligible loss.
- Qualified small business.
- Farming loss.
- Farming business.
- Waiving the 5-year carryback.
- Qualified disaster loss.
- Excluded losses.
- Specified liability loss.
- Waiving the 10-year carryback.
- Waiving the Carryback Period
- How To Carry an NOL Back or Forward
- How To Claim an NOL Deduction
- NOL resulting in no taxable income.
- Deducting a Carryback
- Deducting a Carryforward
- Change in Marital Status
- Refund limit.
- Figuring your share of a joint tax liability.
- Figuring your contribution toward tax paid.
- Change in Filing Status
- How To Figure an NOL Carryover
- NOL Carryover From 2016 to 2017
- Worksheet Instructions
- How To Get Tax Help
- Preparing and filing your tax return.
- Getting tax forms and publications.
- Using direct deposit.
- Delayed refund for returns claiming certain credits.
- Getting a transcript or copy of a return.
- Using online tools to help prepare your return.
- Resolving tax-related identity theft issues.
- Checking on the status of your refund.
- Making a tax payment.
- What if I cant pay now?
- Checking the status of an amended return.
- Understanding an IRS notice or letter.
- Contacting your local IRS office.
- Watching IRS videos.
- Getting tax information in other languages.
- The Taxpayer Advocate Service Is Here To Help You
- What is the Taxpayer Advocate Service?
- What Can the Taxpayer Advocate Service Do For You?
- How Can You Reach Us?
- How Can You Learn About Your Taxpayer Rights?
- How Else Does the Taxpayer Advocate Service Help Taxpayers?
- Low Income Taxpayer Clinics
- Publication 536 - Additional Material
Publication 536 (2016), Net Operating Losses (NOLs) for Individuals, Estates, and Trusts
For use in preparing 2016 Returns
For the latest information about developments related to Pub. 536, such as legislation enacted after it was published, go to www.irs.gov/pub536.
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If your deductions for the year are more than your income for the year, you may have a net operating loss (NOL). An NOL year is the year in which an NOL occurs. You can use an NOL by deducting it from your income in another year or years.
To have an NOL, your loss must generally be caused by deductions from your:
Trade or business,
Work as an employee,
Casualty and theft losses,
Moving expenses, or
A loss from operating a business is the most common reason for an NOL.
Partnerships and S corporations generally cannot use an NOL. However, partners or shareholders can use their separate shares of the partnership's or S corporation's business income and business deductions to figure their individual NOLs.
Form (and Instructions)
1040X Amended U.S. Individual Income Tax Return
1045 Application for Tentative Refund
See How To Get Tax Help near the end of this publication for information about getting these forms.
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.
The following example describes how to figure an NOL.
Glenn Johnson is in the retail record business. He is single and has the following income and deductions on his Form 1040 for 2016.
|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|
|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
|Glenn's total deductions||$16,350|
Glenn's deductions exceed his income by $12,700 ($16,350 − $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, $6,300) minus
nonbusiness income (interest, $425)
|Deduction for personal exemption||4,050|
|Total adjustments to net loss||$10,925|
Therefore, Glenn's NOL for 2016 is figured as follows.
|Glenn's total 2016 income||$3,650|
|Glenn's original 2016 total deductions||$16,350|
|Reduced by the disallowed items||− 10,925||− 5,425|
|Glenn's NOL for 2016||$1,775|
Generally, if you have an NOL for a tax year ending in 2016, 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.
Eligible losses, farming losses, qualified disaster losses, and specified liability losses, all defined next, qualify for longer carryback periods.
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.
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.
You started your business as a sole proprietor in 2016 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 2014, the second year before the NOL year, as shown in the following chart.
|Year|| Carryback/ |
| Unused |
|2016 (NOL year)|
If your loss were larger, you could carry it forward until the year 2036. If you still had an unused 2016 carryforward after the year 2036, you would not be allowed to deduct it.
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 2013. As shown in the following chart, $3,000 of this NOL is used in 2013. The remaining $1,000 is carried to 2014 with the $38,000 NOL that you must begin using in 2014.
|Year|| Carryback/ |
| Unused |
|2016 (NOL year)|
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.
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.
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 2016). Estates and trusts include an NOL deduction on Form 1041 with other deductions not subject to the 2% limit (line 15a for 2016).
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.
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.
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.
If you had an NOL deduction carried forward from a year prior to 2016 that resulted in your having taxable income on your 2016 return of zero (of less than zero, if an estate or trust), complete Table 1, Worksheet for NOL Carryover From 2016 to 2017, on the following pages. It will help you figure your NOL to carry to 2017. Keep the worksheet for your records.
At the top of the worksheet, enter the NOL year for which you are figuring the carryover.
Your taxable income for 2016 is $5,000 without your $9,000 NOL deduction. Your NOL deduction includes a $2,000 carryover from 2014 and a $7,000 carryover from 2015. Subtract your 2014 NOL of $2,000 from $5,000. This gives you taxable income of $3,000. Your 2014 NOL is now completely used up. Subtract your $7,000 2015 NOL from $3,000. This gives you taxable income of ($4,000). You now complete the worksheet for your 2015 NOL. Your NOL carryover to 2017 is the unused part of your 2015 NOL from line 10 of the worksheet.
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- Assistance (see Tax help)
- Deducting a carryback, Deducting a Carryback
- Deducting a carryforward, Deducting a Carryforward
- Domestic production activities deduction, Domestic production activities deduction (line 23)., Modified taxable income.
- Eligible loss, Eligible loss.
- Farming business, Farming business.
- Farming loss, Farming loss.
- Figuring an NOL
- Capital losses, Adjustments for capital losses (lines 19–22).
- Carryover, How To Figure an NOL Carryover
- Form 1045, Schedule A, Form 1045, Schedule A.
- NOL deduction, NOLs from other years (line 24).
- Nonbusiness deductions, Nonbusiness deductions (line 6).
- Nonbusiness income, Nonbusiness income (line 7).
- Filing status, change in, Change in Filing Status
- Form 1045, Schedule A, Form 1045, Schedule A.
- Form 1045, Schedule B, Form 1045, Schedule B.
- Forms and schedules
- Future developments, Future Developments
- Identity theft, Resolving tax-related identity theft issues.
- Publications (see Tax help)
- Refiguring tax, Refiguring your tax.
- Tax help, How To Get Tax Help