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IRS.gov Website
Instructions for Schedule J (Form 1040)
taxmap/instr/i1040sj-005.htm#TXMP0729eb71

Line 5(p2)

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If you used Schedule J to figure your tax for:
If you figured your tax for 2008, 2009, and 2010 without using Schedule J, enter on line 5 the taxable income from your 2008 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 2008 Taxable Income Worksheet to figure the amount to enter on line 5.
If you did not file a tax return for 2008, 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 2008 for at least 3 years after April 17, 2012 (or the date you file your 2011 tax return, if later).
taxmap/instr/i1040sj-005.htm#TXMP34fd159c

Instructions for 2008 Taxable Income Worksheet(p2)

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taxmap/instr/i1040sj-005.htm#TXMP2cb08091
Line 2.(p2)
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Any net capital loss deduction on your 2008 Schedule D, line 21, is not allowed for income averaging purposes to the extent it did not reduce your capital loss carryover to 2009. This could happen if the taxable income before subtracting exemptions—shown on your 2008 Form 1040, line 41, or your 2008 Form 1040NR, line 38 (or as previously adjusted)—was less than zero. Enter on line 2 the amount by which your 2008 capital loss carryover to 2009 (the sum of your short- and long-term capital loss carryovers) exceeds the excess of the loss on your 2008 Schedule D, line 16, over the loss on your 2008 Schedule D, line 21. If you had any Net Operating Loss (NOL) carrybacks to 2008, be sure you refigured your 2008 capital loss carryover to 2009.
taxmap/instr/i1040sj-005.htm#TXMP58fdc008
Line 3.(p2)
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If you had an NOL for 2008, enter the amount of that NOL from line 25 of the 2008 Form 1045, Schedule A, you filed with Form 1045 or Form 1040X. If you did not have an NOL for 2008, enter the portion, if any, of the NOL carryovers and carrybacks to 2008 that were not used in 2008 and were carried to years after 2008.
taxmap/instr/i1040sj-005.htm#TXMP2391acaf
Example.(p2)
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John Farmington, who is single, did not use income averaging for 2008, 2009, or 2010. For 2011, John has $18,000 of elected farm income on Schedule J, line 2a. The taxable income before subtracting exemptions on his 2008 Form 1040, line 41, is $4,350. A deduction for exemptions of $3,500 is shown on line 42, and line 43, taxable income, is $850. However, John had a $21,200 NOL for 2009, $9,000 of which was remaining to carry to 2008 after the NOL was carried back to 2007. To complete line 1 of the 2008 Taxable Income Worksheet, John combines the $9,000 NOL deduction with the $850 from his 2008 Form 1040, line 43. The result is a negative $8,150, John's 2008 taxable income, which he enters as a positive amount on line 1 of the 2008 Taxable Income Worksheet.
When John filed his 2008 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), a $7,000 loss on Schedule D, line 16, and a $4,000 capital loss carryover to 2009. However, when John carried back the 2009 NOL ($9,000 of which was carried to 2008), he refigured his 2008 capital loss carryover to 2009 as $7,000. 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 $3,000 on line 2 of the worksheet.
John had $850 of taxable income in 2008 that reduced the 2009 NOL carryback. The $3,500 exemption deduction and $3,000 net capital loss deduction also reduced the amount of the 2009 NOL carryback. As a result, only $1,650 was available to carry to 2010 and later years, as shown on line 10 of his 2009 Form 1045, Schedule B. John enters the $1,650 on line 3 of the worksheet, and $4,650 ($1,650 plus the $3,000 line 2 amount) on line 4. He then subtracts the $4,650 from the $8,150 on line 1 and enters the result, $3,500, on line 5 of the worksheet. He enters a negative $3,500 on Schedule J, line 5. He combines that amount with the $6,000 on Schedule J, line 6, and enters $2,500 on Schedule J, line 7.
taxmap/instr/i1040sj-005.htm#w25514j02
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2008 Taxable Income Worksheet—Line 5

Complete this worksheet if you did not use Schedule J to figure your tax for 2009 and 2010 and your 2008 taxable income was zero or less. See the instructions above before completing this worksheet for line 5.
1.Figure the taxable income from your 2008 tax return (or as previously adjusted) without limiting it to zero. If you had an NOL for 2008, do not include any NOL carryovers or carrybacks to 2008. Enter the result as a positive amount 1. 
2.If there is a loss on your 2008 Schedule D, line 21, add that loss (as a positive amount) and your 2008 capital loss carryover to 2009. Subtract from that sum the amount of the loss on your 2008 Schedule D, line 16, and enter the result 2.   
3.If you had an NOL for 2008, enter it as a positive amount. Otherwise, enter as a positive amount the portion, if any, of the NOL carryovers and carrybacks to 2008 that were not used in 2008 and were carried to years after 2008 3.   
4.Add lines 2 and 34. 
5.Subtract line 4 from line 1. Enter the result as a negative amount on Schedule J, line 5 5.