taxmap/pubs/p536-003.htm#en_us_publink100096463If 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.
taxmap/pubs/p536-003.htm#en_us_publink100096464If 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.
taxmap/pubs/p536-003.htm#en_us_publink100096465If 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). Also, see the special procedures for filing an amended return due to an NOL carryback, explained under
Form 1040X, later.
taxmap/pubs/p536-003.htm#en_us_publink100096466If 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 2008 to 2006, you must file Form 1045 on or after the date you file your tax return for 2008, but no later than December 31, 2009.
taxmap/pubs/p536-003.htm#en_us_publink1000151835If you have an ESB loss arising in a tax year ending before February 17, 2009, and you are filing Form 1045 to elect a 3, 4, or 5-year carryback period, you must file Form 1045 by the later of the regular due date (
discussed above)
or April 17, 2009.
taxmap/pubs/p536-003.htm#en_us_publink100096467If 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 2005 return by the April 15, 2006, due date, you must file a claim for refund of 2003 tax because of an NOL carryback from 2005 by April 15, 2009.
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.
taxmap/pubs/p536-003.htm#en_us_publink100096468To 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.
- 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.
- The student loan interest deduction.
- 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.
- The phaseout of the deduction for exemptions.
| 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 to, the amount of tax. (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.
taxmap/pubs/p536-003.htm#en_us_publink100096470If 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 2008). Estates and trusts include an NOL deduction on Form 1041 with other deductions not subject to the 2% limit (line 15a for 2008).
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.
taxmap/pubs/p536-003.htm#en_us_publink100096471If 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.
taxmap/pubs/p536-003.htm#en_us_publink100096472If 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.
taxmap/pubs/p536-003.htm#en_us_publink100096473There 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.
taxmap/pubs/p536-003.htm#en_us_publink100096474Unless 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).
taxmap/pubs/p536-003.htm#en_us_publink100096475If 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.
taxmap/pubs/p536-003.htm#en_us_publink100096476If 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.
taxmap/pubs/p536-003.htm#en_us_publink100096477If 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.
taxmap/pubs/p536-003.htm#en_us_publink100096478Figure each spouse's share of the joint NOL through 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.
taxmap/pubs/p536-003.htm#en_us_publink100096479Mark and Nancy are married and file a joint return for 2008. They have an NOL of $5,000. They carry the NOL back to 2006, a year in which Mark and Nancy filed separate returns. Figured separately, Nancy's 2008 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 2006 separate return.
taxmap/pubs/p536-003.htm#en_us_publink100096480Assume the same facts as in
Example 1, except that both Mark and Nancy had deductions in 2008 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 × $1,800/$4,800) and Nancy's is $3,125 ($5,000 − $1,875).
taxmap/pubs/p536-003.htm#en_us_publink100096481If 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.
- 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.
taxmap/pubs/p536-003.htm#en_us_publink100096482Sam and Wanda filed a joint return for 2006 and separate returns for 2007 and 2008. In 2008, 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 2006 joint return and claim a $20,000 NOL deduction.
Their joint modified taxable income (MTI) for 2006 is $15,000, and their joint NOL carryover to 2007 is $5,000 ($20,000 – $15,000). Sam and Wanda each figure their separate MTI for 2006 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 2007 | $5,000 |
Joint carryover to 2007 | $5,000 |
Sam's carryover | − 5,000 |
Wanda's carryover to 2007 | $-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 2007. 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 2007 is $5,000.
taxmap/pubs/p536-003.htm#en_us_publink100096483The 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.
taxmap/pubs/p536-003.htm#en_us_publink100096484Martha Sanders is a self-employed contractor. Martha's 2008 deductions are more than her 2008 income because of a business loss. She uses Form 1045 to carry back her NOL 2 years and claim an NOL deduction in 2006. (Martha does not choose a 3, 4, or 5-year carryback period for her 2008 NOL under the rule for ESB losses.) Her filing status in both years was single. See the filled-in Form 1045 on page 12.
Martha completes lines 10 through 25, using the "Before carryback" column under the column for the second preceding tax year ended 12/31/06 on page 1 of Form 1045 using the following amounts from her 2006 return.
2006 Adjusted gross income | $50,000 |
Itemized deductions: | | |
Medical expenses [$6,000 − ($50,000 × 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 | $3,300 |
Income tax | $4,926 |
Self-employment tax | $6,120 |
Martha refigures her taxable income for 2006 after carrying back her 2008 NOL as follows:
2006 Adjusted gross income | $50,000 |
Less: | | |
NOL from 2008 | −10,000 |
2006 Adjusted gross income after carryback | $40,000 |
Less: | | |
Itemized deductions: | | |
Medical expenses [$6,000 − ($40,000 × 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 | − 3,300 |
2006 Taxable income after carryback | $22,700 |
Martha then completes lines 10 through 25, using the "After carryback" column under the column for the second preceding tax year ended 12/31/06. On line 10, Martha enters her $10,000 NOL deduction. Her new adjusted gross income on line 11 is $40,000 ($50,000 − $10,000). To complete line 12, 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 × 7.5%)]. This increases her total itemized deductions to $14,000 [$13,250 + ($3,000 − $2,250)].
Martha uses her refigured taxable income ($22,700) from line 15, and the tax tables in her 2006 Form 1040 instructions to find her income tax. She enters the new amount, $3,031, on line 16, and her new total tax liability, $9,151, on line 25.
Martha used up her $10,000 NOL in 2006 so she does not complete a column for the first preceding tax year ended 12/31/2007. The decrease in tax because of her NOL deduction (line 27) is $1,895.
Martha files Form 1045 after filing her 2008 return, but no later than December 31, 2009. She mails it to the Internal Revenue Service Center for the place where she lives as shown in the 2008 instructions for Form 1040 and attaches a copy of her 2008 return (including the applicable forms and schedules).
taxmap/pubs/p536-003.htm#en_us_publink100096485