If you used Schedule J to figure your tax for:
- 2008 (that is, you entered the amount from the 2008 Schedule J, line 22, on line 44 of your 2008 Form 1040, on line 41 of 2008 Form 1040NR, or on Form 1040X for 2008), enter on line 9 the amount from your 2008 Schedule J, line 15.
- 2007 but not 2008, enter on line 9 the amount from your 2007 Schedule J, line 3.
If you figured your tax for both 2007 and 2008 without using Schedule J, enter on line 9 the taxable income from your 2007 tax return (or as previously adjusted by the IRS or corrected on an amended return). But if that amount is zero or less, complete the worksheet below to figure the amount to enter on line 9.
If you did not file a tax return for 2007, use the amount you would have reported as your taxable income had you been required to file a tax return. Be sure to keep all your records for 2007 until at least 3 years after April 15, 2010 (or the date you file your 2009 tax return, if later). taxmap/instr/i1040sj-007.htm#TXMP60b7f22btaxmap/instr/i1040sj-007.htm#TXMP062ea9fa
Any net capital loss deduction on your 2007 Schedule D, line 21, is not allowed for income averaging purposes to the extent it did not reduce your capital loss carryover to 2008. This could happen if the taxable income before subtracting exemptions—shown on your 2007 Form 1040, line 41, or your 2007 Form 1040NR, line 38 (or as previously adjusted)—was less than zero. Enter on line 2 the amount by which your 2007 capital loss carryover to 2008 (the sum of your short- and long-term capital loss carryovers) exceeds the excess of the loss on your 2007 Schedule D, line 16, over the loss on your 2007 Schedule D, line 21. If you had any NOL carrybacks to 2007, be sure you refigured your 2007 capital loss carryover to 2008.taxmap/instr/i1040sj-007.htm#TXMP0a82c825
If you had an NOL for 2007, enter the amount of that NOL from line 25 of the 2007 Form 1045, Schedule A, you filed with Form 1045 or Form 1040X. If you did not have an NOL for 2007, enter the portion, if any, of the NOL carryovers and carrybacks to 2007 that were not used in 2007 and were carried to years after 2007. taxmap/instr/i1040sj-007.htm#TXMP08ce1acc
John Farmington did not use income averaging for 2006, 2007, or 2008. The taxable income before subtracting exemptions on his 2007 Form 1040, line 41, is a negative $29,900. A deduction for exemptions of $3,400 is shown on line 42, and line 43, taxable income, is limited to zero. John subtracts from the $29,900 loss the $3,400 deduction for exemptions. The result is a negative $33,300, John's 2007 taxable income, which he enters as a positive amount on line 1 of the 2007 Taxable Income Worksheet.
When John filed his 2007 tax return, he had a $3,000 net capital loss deduction on Schedule D, line 21 (which was also entered on Form 1040, line 13), and a $7,000 loss on Schedule D, line 16 (as adjusted). He also had a $7,000 capital loss carryover to 2008. John adds the $3,000 from Schedule D, line 21, and the $7,000 carryover. He subtracts from the $10,000 result the $7,000 loss on his Schedule D, line 16, and enters $3000 on line 2 of the worksheet.
John enters $21,550 on line 3 of the worksheet, the 2007 NOL from his 2007 Form 1045, Schedule A, line 25. Of the $33,300 negative taxable income, the $3,400 deduction for exemptions, the $3,000 capital loss deduction, and his $5,350 standard deduction were not allowed in figuring the NOL. John had a $21,550 loss on his 2007 Schedule F, the only other item on his 2007 tax return.
John enters $24,550 (the $3,000 line 2 amount plus the $21,550 line 3 amount) on line 4 and $8,750 (the $33,300 line 1 amount minus the $24,550 line 4 amount) on line 5. He enters $8,750 as a negative amount on Schedule J, line 9. He enters $6,000 on Schedule J, line 10, and a negative $2,750 on Schedule J, line 11. If he uses Schedule J to figure his tax for 2010, he will enter the negative $2,750 amount on his 2010 Schedule J as his 2007 taxable income for income averaging purposes.
2007 Taxable Income Worksheet—Line 9
|Complete this worksheet if you did not use Schedule J to figure your tax for 2008 and your 2007 taxable income was zero or less. See the instructions above before completing this worksheet.|
|1.||Figure the taxable income from your 2007 tax return (or as previously adjusted) without limiting it to zero. If you had an NOL for 2007, do not include any NOL carryovers or carrybacks to 2007. Enter the result as a positive amount||1.|| || |
|2.||If there is a loss on your 2007 Schedule D, line 21, add that loss (as a positive amount) and your 2007 capital loss carryover to 2008. Subtract from that sum the amount of the loss on your 2007 Schedule D, line 16, and enter the result||2.|| || || || |
|3.||If you had an NOL for 2007, enter it as a positive amount. Otherwise, enter as a positive amount the portion, if any, of the NOL carryovers and carrybacks to 2007 that were not used in 2007 and were carried to years after 2007||3.|| || || || |
|4.||Add lines 2 and 3||4.|| || |
|5.||Subtract line 4 from line 1. Enter the result as a negative amount on Schedule J, line 9||5.|| || |
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