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.

This publication discusses NOLs for individuals, estates, and trusts. It covers:

• How to figure an NOL,
• When to use an NOL,
• How to claim an NOL deduction, and
• How to figure an NOL carryover.

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
• Rental property.

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.

You should keep records for any tax year that generates an NOL for 3 years after you have used the carryback/carryforward or 3 years after the carryforward expires.

The following topics are not covered in this publication.

• Bankruptcies. See Publication 908, Bankruptcy Tax Guide.
• NOLs of corporations. See Publication 542, Corporations.

Section references are to the Internal Revenue Code unless otherwise noted.

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Follow Steps 1 through 5 to figure and use your NOL.

Complete your tax return for the year. You may have an NOL if a negative figure appears on the line below:

• Individuals — Form 1040, line 41, or Form 1040NR, line 39.
• Estates and trusts — Form 1041, line 22.

If the amount on that line is not negative, stop here — you do not have an NOL.

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.

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.

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.

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.

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.