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

Line 5(p2)

rule
If you used Schedule J to figure your tax for:
If you figured your tax for 2012, 2013, and 2014 without using Schedule J, enter on line 5 the taxable income from your 2012 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 2012 Taxable Income Worksheet to figure the amount to enter on line 5.
If you didn't file a tax return for 2012, 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 2012 for at least 3 years after April 15, 2016 (or the date you file your 2015 tax return, if later).
taxmap/instr/i1040sj-005.htm#en_us_publink1000274209

Instructions for 2012 Taxable Income Worksheet(p3)

rule
taxmap/instr/i1040sj-005.htm#en_us_publink1000274210
Line 2.(p3)
rule
Any net capital loss deduction on your 2012 Schedule D, line 21, isn't allowed for income averaging purposes to the extent it didn't reduce your capital loss carryover to 2013. This could happen if the taxable income before subtracting exemptions—shown on your 2012 Form 1040, line 41, or your 2012 Form 1040NR, line 39 (or as previously adjusted)—was less than zero. Enter on line 2 the amount by which your 2012 capital loss carryover to 2013 (the sum of your short- and long-term capital loss carryovers) exceeds the excess of the loss on your 2012 Schedule D, line 16, over the loss on your 2012 Schedule D, line 21. If you had any Net Operating Loss (NOL) carrybacks to 2012, be sure you refigured your 2012 capital loss carryover to 2013.
taxmap/instr/i1040sj-005.htm#en_us_publink1000274211
Line 3.(p3)
rule
If you had an NOL for 2012, enter the amount of that NOL from the 2012 Form 1045, Schedule A, line 25, you filed with Form 1045 or Form 1040X. If you didn't have an NOL for 2012, enter the portion, if any, of the NOL carryovers and carrybacks to 2012 that weren't used in 2012 and were carried to years after 2012.
taxmap/instr/i1040sj-005.htm#en_us_publink1000274212
Example.(p3)
John Farmington, who is single, didn't use income averaging for 2012, 2013, or 2014. For 2015, John has $18,000 of elected farm income on Schedule J, line 2a. The taxable income before subtracting exemptions on his 2012 Form 1040, line 41, is $4,650. A deduction for exemptions of $3,800 is shown on line 42, and line 43, taxable income, is $850. However, John had a $20,800 NOL for 2013, $9,000 of which was remaining to carry to 2012 after the NOL was carried back to 2011. To complete line 1 of the 2012 Taxable Income Worksheet, John combines the $9,000 NOL deduction with the $850 from his 2012 Form 1040, line 43. The result is a negative $8,150, John's 2012 taxable income, which he enters as a positive amount on line 1 of the 2012 Taxable Income Worksheet.
When John filed his 2012 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 2013. However, when John carried back the 2013 NOL ($9,000 of which was carried to 2012), he refigured his 2012 capital loss carryover to 2013 as $7,000. John adds the $3,000 from Schedule D, line 21, and the $7,000 capital loss 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 2012 that reduced the 2013 NOL carryback. The $3,800 exemption deduction and $3,000 net capital loss deduction also reduced the amount of the 2013 NOL carryback. As a result, only $1,350 ($9,000 – $850 – $3,800 – $3,000 = $1,350) was available to carry to 2014 and later years, as shown on his 2013 Form 1045, Schedule B, line 10. John enters the $1,350 on line 3 of the worksheet, and $4,350 ($1,350 plus the $3,000 line 2 amount) on line 4. He then subtracts the $4,350 from the $8,150 on line 1 and enters the result, $3,800, on line 5 of the worksheet. He enters a negative $3,800 on Schedule J, line 5. He combines that amount with the $6,000 on Schedule J, line 6, and enters $2,200 on Schedule J, line 7.
taxmap/instr/i1040sj-005.htm#w25514j02
pencil2012 Taxable Income Worksheet—Line 5
Complete this worksheet if you didn't use Schedule J to figure your tax for 2013 and 2014 and your 2012 taxable income was zero or less. See the instructions above before completing this worksheet for line 5.
1.Figure the taxable income from your 2012 tax return (or as previously adjusted) without limiting it to zero. If you had an NOL for 2012, don't include any NOL carryovers or carrybacks to 2012. Enter the result as a positive amount 1. 
2.If there is a loss on your 2012 Schedule D, line 21, add that loss (as a positive amount) and your 2012 capital loss carryover to 2013. Subtract from that sum the amount of the loss on your 2012 Schedule D, line 16, and enter the result 2.   
3.If you had an NOL for 2012, enter it as a positive amount. Otherwise, enter as a positive amount the portion, if any, of the NOL carryovers and carrybacks to 2012 that weren't used in 2012 and were carried to years after 2012 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.