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. taxmap/pubs/p536-004.htm#en_us_publink1000177429
Your modified taxable income is your taxable income figured with the following changes.
- You cannot claim an NOL deduction for the NOL 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 the domestic production activities deduction.
- You cannot claim a deduction for 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), (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. taxmap/pubs/p536-004.htm#en_us_publink1000177430
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 2009 return includes an NOL deduction from an NOL year before 2009 that reduced your taxable income to zero (to less than zero, if an estate or trust), see NOL Carryover From 2009 to 2010
If you elect to carry back a 2008 or 2009 NOL for a period of 5 years under Rev. Proc. 2009-52 (as explained under Special Rules for 2008 or 2009 NOLs
on page 8), the amount so elected is absorbed by no more than 50 percent of your modified taxable income for the 5th preceding tax year. You must follow the special rules discussed below.
The amount of the NOL that is absorbed in the 5th preceding tax year is limited to 50 percent of modified taxable income for such tax year (determined without regard to the NOL for the loss year or any tax year thereafter). To figure this limit, combine lines 2 through 8 on Schedule B (Form 1045) and divide that amount by 2. Enter the result (but not less than zero) on Schedule B (Form 1045), line 9. Subtract the amount so entered on line 9 from the amount on line 1 and enter the result on Schedule B (Form 1045), line 10. For other years, the general rule applies.taxmap/pubs/p536-004.htm#en_us_publink1000245866
If you carry back part of your NOL to the 5th preceding tax year under Rev. Proc. 2009-52 and also carry back to the 5th preceding year another part of your NOL from the same loss year under a different 5-year carryback provision, such as Rev. Proc. 2009-26 (for ESBs) or section 172(b)(1)(G) (farming losses), use the Worksheet for NOL Carryovers on page 8 of the 2009 Instructions for Form 1045, to calculate your NOL carryover from the 5th preceding tax year.taxmap/pubs/p536-004.htm#en_us_publink1000177432
The following example illustrates how to figure an NOL carryover from a carryback year. It includes a filled-in Schedule B (Form 1045).taxmap/pubs/p536-004.htm#en_us_publink1000177433
Ida Brown runs a small clothing shop. In 2009, she has an NOL of $36,000 that she carries back to 2007. (Ida does not choose a 3, 4, or 5-year carryback period for her 2009 NOL under the special rules for 2008 or 2009 NOLs.) She has no other carrybacks or carryovers to 2007.
Ida's adjusted gross income in 2007 was $35,000, consisting of her salary of $36,000 minus a $1,000 capital loss deduction. She is single and claimed only one personal exemption of $3,400. During that year, she gave $1,450 in charitable contributions. Her medical expenses were $3,000. She also deducted $1,650 in taxes and $3,125 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 × $35,000 = $2,625; $3,000 − $2,625 = $375). The deductions for taxes and home mortgage interest were not subject to any limits. She was able to claim $6,600 ($1,450 + $375 + $1,650 + $3,125) in itemized deductions for 2007. She had no other deductions in 2007. Her taxable income for the year was $25,000.
Ida's $36,000 carryback will reduce her 2007 taxable income to zero. She completes the column for the second preceding tax year ended 12/31/07 of Schedule B (Form 1045) to figure how much of her NOL she uses up in 2007 and how much she can carry over to 2008. See the illustrated Schedule B shown on pages 14 and 15. Ida does not complete the column for the first preceding tax year ended 12/31/08 because the $6,525 carryover to 2008 is completely used up that year. (See the information for line 9 below.)
Line 1. Ida enters $36,000, her 2009 net operating loss, on line 1.
Line 2. She enters $25,000, her 2007 taxable income, on line 2.
Line 3. Ida enters her net capital loss deduction of $1,000 on line 3.
Lines 4 and 5. Ida had no section 1202 exclusion or domestic production activities deduction in 2007. She enters zero on lines 4 and 5.
Line 6. 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 6.
Line 7. Ida had itemized deductions and entered $1,000 on line 3, so she completes lines 11 through 38 to figure her adjustment to itemized deductions. On line 7, she enters the total adjustment from line 38.
Line 11. Ida's adjusted gross income for 2007 was $35,000.
Line 12. She adds lines 3 through 6 and enters $1,000 on line 12. (This is her net capital loss deduction added back, which modifies her adjusted gross income.)
Line 13. Her modified adjusted gross income for 2007 is now $36,000.
Line 14. On her 2007 tax return, she deducted $375 as medical expenses.
Line 15. Her actual medical expenses were $3,000.
Line 16. She multiplies her modified adjusted gross income, $36,000, by .075. She enters $2,700 on line 16.
Line 17. The difference between her actual medical expenses and the amount she is allowed to deduct is $300.
Line 18. The difference between her medical deduction and her modified medical deduction is $75. She enters this on line 18.
Lines 19 through 21. Ida had no deduction for qualified mortgage insurance premiums in 2007. She skips lines 19 and 20 and enters zero on line 21.
Line 22. She enters her modified adjusted gross income of $36,000 on line 22.
Line 23. She had no other carrybacks to 2007 and enters zero on line 23.
Line 24. Her modified adjusted gross income remains $36,000.
Line 25. Her actual contributions for 2007 were $1,450, which she enters on line 25.
Line 26. She now refigures her charitable contributions based on her modified adjusted gross income. Her contributions are well below the 50% limit, so she enters $1,450 on line 26.
Line 27. The difference is zero.
Lines 28 through 37. Ida had no casualty losses or deductions for miscellaneous items in 2007. She skips lines 28 through 31 and lines 33 through 36. Ida enters zero on lines 32 and 37.
Line 38. She combines lines 18, 21, 27, 32, and 37 and enters $75 on line 38. She carries this figure to line 7.
Line 8. Ida enters the deduction for her personal exemption of $3,400 for 2007.
Line 9. After combining lines 2 through 8, Ida's modified taxable income is $29,475.
Ida figures her carryover to 2008 by subtracting her modified taxable income (line 9) from her NOL deduction (line 1). She enters the $6,525 carryover on line 10. She also enters the $6,525 as her NOL deduction for 2008 on Form 1045, page 1, line 10, in the "After carryback" column under the column for the first preceding tax year ended 12/31/08. (For an illustrated example of page 1 of Form 1045, see Illustrated Form 1045
under How To Claim an NOL Deduction
, earlier.) taxmap/pubs/p536-004.htm#en_us_publink1000177436