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IRS.gov Website
Publication 536
taxmap/pubs/p536-002.htm#en_us_publink1000177352

When To Use an NOL(p7)

rule
Generally, if you have an NOL for a tax year ending in 2010, 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.
taxmap/pubs/p536-002.htm#en_us_publink1000177354

NOL year.(p7)

rule
This is the year in which the NOL occurred.
taxmap/pubs/p536-002.htm#en_us_publink1000177355

Exceptions to 2-Year Carryback Rule(p7)

rule
Eligible losses, farming losses, qualified disaster losses, qualified GO Zone losses, and specified liability losses, defined next, qualify for longer carryback periods.
taxmap/pubs/p536-002.htm#en_us_publink1000177356

Eligible loss.(p7)

rule
The carryback period for eligible losses is 3 years. Only the eligible loss portion of the NOL can be carried back 3 years. An eligible loss is any part of an NOL that:
taxmap/pubs/p536-002.htm#en_us_publink1000177357
Qualified small business.(p7)
A qualified small business is a sole proprietorship or a partnership that has average annual gross receipts (reduced by returns and allowances) of $5 million or less during the 3-year period ending with the tax year of the NOL. If the business did not exist for this entire 3-year period, use the period the business was in existence.
An eligible loss does not include a farming loss, a qualified disaster loss, or a qualified GO Zone loss.
taxmap/pubs/p536-002.htm#en_us_publink1000177358

Farming loss.(p7)

rule
The carryback period for a farming loss is 5 years. Only the farming loss portion of the NOL can be carried back 5 years. A farming loss is the smaller of:
  1. The amount that would be the NOL for the tax year if only income and deductions attributable to farming businesses were taken into account, or
  2. The NOL for the tax year.
taxmap/pubs/p536-002.htm#en_us_publink1000177359
Farming business.(p7)
A farming business is a trade or business involving cultivation of land, raising or harvesting of any agricultural or horticultural commodity, operating a nursery or sod farm, raising or harvesting of trees bearing fruit, nuts, or other crops, or ornamental trees. The raising, shearing, feeding, caring for, training, and management of animals is also considered a farming business.
A farming business does not include contract harvesting of an agricultural or horticultural commodity grown or raised by someone else. It also does not include a business in which you merely buy or sell plants or animals grown or raised by someone else.
taxmap/pubs/p536-002.htm#en_us_publink1000177360
Waiving the 5-year carryback.(p7)
You can choose to figure the carryback period for a farming loss without regard to the special 5-year carryback rule. To make this choice for 2010, attach to your 2010 income tax return filed by the due date (including extensions) a statement that you are choosing to treat any 2010 farming losses without regard to the special 5-year carryback rule. If you filed your return on time, you can make this choice on an amended return filed within 6 months after 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 made, this choice is irrevocable.
taxmap/pubs/p536-002.htm#en_us_publink1000177361

Qualified disaster loss.(p7)

rule
The carryback period for a qualified disaster loss is 5 years. Only the qualified disaster loss portion of the NOL can be carried back 5 years. A qualified disaster loss is the smaller of:
  1. The sum of:
    1. Any losses attributable to a federally declared disaster and occurring in the disaster area, plus
    2. Any allowable qualified disaster expenses (even if you did not choose to treat those expenses as deductions in the current year), or
  2. The NOL for the tax year.
taxmap/pubs/p536-002.htm#en_us_publink1000177362
Qualified disaster expenses.(p7)
A qualified disaster expense is any capital expense paid or incurred in connection with a trade or business or with business-related property which is: Business-related property is property held for use in a trade or business, property held for the production of income, or inventory property.
Note.Internal Revenue Code section 198A allows taxpayers to treat certain capital expenses (qualified disaster expenses) as deductions in the year the expenses were paid or incurred.
taxmap/pubs/p536-002.htm#en_us_publink1000177364
Excluded losses.(p7)
A qualified disaster loss does not include any losses from property used in connection with any private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, or any store for which the principal business is the sale of alcoholic beverages for consumption off premises.
A qualified disaster loss also does not include any losses from any gambling or animal racing property. Gambling or animal racing property is any equipment, furniture, software, or other property used directly in connection with gambling, the racing of animals, or the on-site viewing of such racing, and the portion of any real property (determined by square footage) that is dedicated to gambling, the racing of animals, or the on-site viewing of such racing, unless this portion is less than 100 square feet.
taxmap/pubs/p536-002.htm#en_us_publink1000177365
Waiving the 5-year carryback.(p7)
You can choose to figure the carryback period for a qualified disaster loss without regard to the special 5-year carryback rule. To make this choice for 2010, attach to your 2010 income tax return filed by the due date (including extensions) a statement that you are choosing to treat any 2010 qualified disaster losses without regard to the special 5-year carryback rule. If you filed your return on time, you can make this choice on an amended return filed within 6 months after 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 made, this choice is irrevocable.
taxmap/pubs/p536-002.htm#en_us_publink1000177366

Qualified GO Zone loss.(p7)

rule
The carryback period for a qualified GO Zone loss is 5 years. Only the qualified GO Zone loss portion of the NOL can be carried back 5 years. A qualified GO Zone loss is the smaller of:
  1. The excess of the NOL for the year over the specified liability loss for the year to which a 10-year carryback applies, or
  2. The total of any qualified GO Zone casualty loss and any depreciation allowable for any specified GO Zone extension nonresidential real property and residential rental property placed in service in 2010 (even if you elected not to claim the special GO Zone depreciation allowance for such property).
For a list of counties and parishes included in the GO Zone, see Notice 2007-36, 2007-17 I.R.B. 1000, available at http://www.irs.gov/irb/2007-17_IRB/ar12.html.
taxmap/pubs/p536-002.htm#en_us_publink1000177367
Waiving the 5-year carryback.(p7)
You can choose to figure the carryback period for a qualified GO Zone loss without regard to the special 5-year carryback rule. To make this choice for 2010, attach to your 2010 income tax return filed by the due date (including extensions) a statement that you are choosing to treat any 2010 qualified GO Zone losses without regard to the special 5-year carryback rule. If you filed your original return on time, you can make this choice on an amended return filed within 6 months after 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 made, this choice is irrevocable.
taxmap/pubs/p536-002.htm#en_us_publink1000177377

Specified liability loss.(p7)

rule
The carryback period for a specified liability loss is 10 years. Only the specified liability loss portion of the NOL can be carried back 10 years. Generally, a specified liability loss is a loss arising from:
  1. Reclamation of land,
  2. Dismantling of a drilling platform,
  3. Remediation of environmental contamination, or
  4. Payment under any workers compensation act.
Any loss from a liability arising from (1) through (4) above can be taken into account as a specified liability loss only if you used an accrual method of accounting throughout the period in which the act (or failure to act) occurred. For details, see section 172(f) of the Internal Revenue Code.
taxmap/pubs/p536-002.htm#en_us_publink1000177378
Waiving the 10-year carryback.(p7)
You can choose to figure the carryback period for a specified liability loss without regard to the special 10-year carryback rule. To make this choice for 2010, attach to your 2010 income tax return filed by the due date (including extensions) a statement that you are choosing to treat any 2010 specified liability losses without regard to the special 10-year carryback rule. If you filed your original return on time, you can make this choice on an amended return filed within 6 months after 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 made, this choice is irrevocable.
taxmap/pubs/p536-002.htm#en_us_publink1000177379

Waiving the Carryback Period(p8)

rule
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) of the Internal Revenue Code.
If you filed your return timely but did not file the statement with it, you must file the statement with an amended return for the NOL year within 6 months of the due date of your original return (excluding extensions). Enter "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.
EIC
If you do not file this statement on time, you cannot waive the carryback period.
taxmap/pubs/p536-002.htm#en_us_publink1000177383

How To Carry an NOL Back or Forward(p8)

rule
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 do not use up the NOL in the carryback years, carry forward what remains of it 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.
taxmap/pubs/p536-002.htm#en_us_publink1000177384

Example 1.(p8)

You started your business as a sole proprietor in 2010 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 2008, the second year before the NOL year, as shown in the following chart.
Year Carryback/
Carryover
Unused
Loss
2008$42,000$40,000
200940,00037,000
2010 (NOL year)  
201137,00031,500
201231,50022,500
201322,50012,700
201412,7004,000
20154,000-0-
If your loss were larger, you could carry it forward until the year 2030. If you still had an unused 2010 carryforward after the year 2030, you would not be allowed to deduct it.
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Example 2.(p8)

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 2007. As shown in the following chart, $3,000 of this NOL is used in 2007. The remaining $1,000 is carried to 2008 with the $38,000 NOL that you must begin using in 2008.
Year Carryback/
Carryover
Unused
Loss
2007$4,000$1,000
200839,00037,000
200937,00034,000
2010 (NOL year)  
201134,00028,500
201228,50019,500
201319,5009,700
20149,7001,000
20151,000-0-