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IRS.gov Website
Instructions for Schedule J (Form 1040)
taxmap/instr/i1040sj-005.htm#en_us_publink1000274208

Line 5(p2)

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If you used Schedule J to figure your tax for:
If you figured your tax for 2010, 2011, and 2012 without using Schedule J, enter on line 5 the taxable income from your 2010 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 2010 Taxable Income Worksheet to figure the amount to enter on line 5.
If you did not file a tax return for 2010, 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 2010 for at least 3 years after April 15, 2014 (or the date you file your 2013 tax return, if later).
taxmap/instr/i1040sj-005.htm#en_us_publink1000274209

Instructions for 2010 Taxable Income Worksheet(p3)

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taxmap/instr/i1040sj-005.htm#en_us_publink1000274210
Line 2.(p3)
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Any net capital loss deduction on your 2010 Schedule D, line 21, is not allowed for income averaging purposes to the extent it did not reduce your capital loss carryover to 2011. This could happen if the taxable income before subtracting exemptions—shown on your 2010 Form 1040, line 41, or your 2010 Form 1040NR, line 39 (or as previously adjusted)—was less than zero. Enter on line 2 the amount by which your 2010 capital loss carryover to 2011 (the sum of your short- and long-term capital loss carryovers) exceeds the excess of the loss on your 2010 Schedule D, line 16, over the loss on your 2010 Schedule D, line 21. If you had any Net Operating Loss (NOL) carrybacks to 2010, be sure you refigured your 2010 capital loss carryover to 2011.
taxmap/instr/i1040sj-005.htm#en_us_publink1000274211
Line 3.(p3)
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If you had an NOL for 2010, enter the amount of that NOL from line 25 of the 2010 Form 1045, Schedule A, you filed with Form 1045 or Form 1040X. If you did not have an NOL for 2010, enter the portion, if any, of the NOL carryovers and carrybacks to 2010 that were not used in 2010 and were carried to years after 2010.
taxmap/instr/i1040sj-005.htm#en_us_publink1000274212
Example.(p3)
John Farmington, who is single, did not use income averaging for 2010, 2011, or 2012. For 2013, John has $18,000 of elected farm income on Schedule J, line 2a. The taxable income before subtracting exemptions on his 2010 Form 1040, line 41, is $4,500. A deduction for exemptions of $3,650 is shown on line 42, and line 43, taxable income, is $850. However, John had a $21,100 NOL for 2011, $9,000 of which was remaining to carry to 2010 after the NOL was carried back to 2009. To complete line 1 of the 2010 Taxable Income Worksheet, John combines the $9,000 NOL deduction with the $850 from his 2010 Form 1040, line 43. The result is a negative $8,150, John's 2010 taxable income, which he enters as a positive amount on line 1 of the 2010 Taxable Income Worksheet.
When John filed his 2010 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 2011. However, when John carried back the 2011 NOL ($9,000 of which was carried to 2010), he refigured his 2010 capital loss carryover to 2011 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 2010 that reduced the 2011 NOL carryback. The $3,650 exemption deduction and $3,000 net capital loss deduction also reduced the amount of the 2011 NOL carryback. As a result, only $1,500 was available to carry to 2012 and later years, as shown on line 10 of his 2011 Form 1045, Schedule B. John enters the $1,500 on line 3 of the worksheet, and $4,500 ($1,500 plus the $3,000 line 2 amount) on line 4. He then subtracts the $4,500 from the $8,150 on line 1 and enters the result, $3,650, on line 5 of the worksheet. He enters a negative $3,650 on Schedule J, line 5. He combines that amount with the $6,000 on Schedule J, line 6, and enters $2,350 on Schedule J, line 7.
taxmap/instr/i1040sj-005.htm#id2013_w25514j02
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2010 Taxable Income Worksheet—Line 5

Complete this worksheet if you did not use Schedule J to figure your tax for 2011 and 2012 and your 2010 taxable income was zero or less. See the instructions above before completing this worksheet for line 5.
1.Figure the taxable income from your 2010 tax return (or as previously adjusted) without limiting it to zero. If you had an NOL for 2010, do not include any NOL carryovers or carrybacks to 2010. Enter the result as a positive amount 1. 
2.If there is a loss on your 2010 Schedule D, line 21, add that loss (as a positive amount) and your 2010 capital loss carryover to 2011. Subtract from that sum the amount of the loss on your 2010 Schedule D, line 16, and enter the result 2.   
3.If you had an NOL for 2010, enter it as a positive amount. Otherwise, enter as a positive amount the portion, if any, of the NOL carryovers and carrybacks to 2010 that were not used in 2010 and were carried to years after 2010 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.