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come to zero (to less than zero, if an estate or

10 through 34 to figure her adjustment to item-

How To Figure

trust), see NOL Carryover From 2005 to 2006,

ized deductions. On line 6, she enters the total

later.

adjustment from line 34.

an NOL Carryover

Line 10. Ida’s adjusted gross income for

Illustrated Schedule B (Form

2003 was $29,000.

If your NOL is more than your taxable income for

1045)

Line 11. She adds lines 3 through 5 and

the year to which you carry it (figured before

enters $1,000 on line 11. (This is her net capital

deducting the NOL), you may have an NOL

loss deduction added back, which modifies her

The following example illustrates how to figure

carryover. You must make certain modifications

adjusted gross income.)

an NOL carryover from a carryback year. It in-

to your taxable income to determine how much

cludes a filled-in Schedule B (Form 1045).

Line 12. Her modified adjusted gross income

NOL you will use up in that year and how much

for 2003 is now $30,000.

you can carry over to the next tax year. Your

Example. Ida Brown runs a small clothing

Line 13. On her 2003 tax return, she de-

carryover is the excess of your NOL deduction

shop. In 2005, she has an NOL of $36,000 that

ducted $550 as medical expenses.

over your modified taxable income for the car-

she carries back to 2003. She has no other

Line 14. Her actual medical expenses were

ryback or carryforward year. If your NOL deduc-

carrybacks or carryovers to 2003.

$2,725.

tion includes more than one NOL, apply the

Ida’s adjusted gross income in 2003 was

Line 15. She multiplies her modified ad-

NOLs against your modified taxable income in

$29,000, consisting of her salary of $30,000

justed gross income, $30,000, by .075. She en-

the same order in which you incurred them,

minus a $1,000 capital loss deduction. She is

ters $2,250 on line 15.

starting with the earliest.

single and claimed only one personal exemption

Line 16. The difference between her actual

of $3,050. During that year, she gave $1,450 in

Modified taxable income. Your modified tax-

medical expenses and the amount she is al-

charitable contributions. Her medical expenses

able income is your taxable income figured with

lowed to deduct is $475.

were $2,725. She also deducted $1,650 in taxes

the following changes.

Line 17. The difference between her medical

and $1,125 in home mortgage interest.

deduction and her modified medical deduction is

1. You cannot claim an NOL deduction for

Her deduction for charitable contributions

$75. She enters this on line 17.

the NOL carryover you are figuring or for

was not limited because her contributions,

Line 18. She enters her modified adjusted

any later NOL.

$1,450, were less than 50% of her adjusted

gross income of $30,000 on line 18.

gross income. The deduction for medical ex-

2. You cannot claim a deduction for capital

Line 19. She had no other carrybacks to

penses was limited to expenses over 7.5% of

losses in excess of your capital gains.

adjusted gross income (.075 × $29,000 =

2003 and enters zero on line 19.

Also, you must increase your taxable in-

$2,175; $2,725 − $2,175 = $550). The deduc-

Line 20. Her modified adjusted gross income

come by the amount of any section 1202

tions for taxes and home mortgage interest were

remains $30,000.

exclusion claimed on Schedule D (Form

not subject to any limits. She was able to claim

Line 21. Her actual contributions for 2003

1040).

$4,775 ($1,450 + $550 + $1,650 + $1,125) in

were $1,450, which she enters on line 21.

3. You cannot claim a deduction for your ex-

itemized deductions for 2003. She had no other

Line 22. She now refigures her charitable

emptions for yourself, your spouse, or de-

deductions in 2003. Her taxable income for the

contributions based on her modified adjusted

pendents.

year was $21,175.

gross income. Her contributions are well below

Ida’s $36,000 carryback will reduce her 2003

the 50% limit, so she enters $1,450 on line 22.

4. You must figure any item affected by the

taxable income to zero. She completes the col-

amount of your adjusted gross income af-

Line 23. The difference is zero.

umn for the second preceding tax year ended

ter making the changes in (1) and (2),

Lines 24 through 33. Ida had no casualty

12/31/03 of Schedule B (Form 1045) to figure

above, and certain other changes to your

losses or deductions for miscellaneous items in

how much of her NOL she uses up in 2003 and

adjusted gross income that result from (1)

2003 so she leaves these lines blank.

how much she can carry over to 2004. See the

and (2). This includes income and deduc-

Line 34. She combines lines 17, 23, 28, and

illustrated Schedule B shown on page 12. Ida

tion items used to figure adjusted gross

33 and enters $75 on line 34. She carries this

does not complete the column for the first pre-

income (for example, IRA deductions), as

figure to line 6.

ceding tax year ended 12/31/04 because the

well as certain itemized deductions. To fig-

Line 7. Ida enters the deduction for her per-

$10,700 carryover to 2004 is completely used

ure a charitable contribution deduction, do

sonal exemption of $3,050 for 2003.

up that year. (See the information for line 9

not include deductions for NOL carrybacks

Line 8. After combining lines 2 through 7,

below.)

in the change in (1) but do include deduc-

Ida’s modified taxable income is $25,300.

Line 1. Ida enters $36,000, her 2005 net

tions for NOL carryforwards from tax years

operating loss, on line 1.

Line 9. Ida figures her carryover to 2004 by

before the NOL year.

subtracting her modified taxable income (line 8)

Line 2. She enters $21,175, her 2003 tax-

Your taxable income as modified cannot be

from her NOL deduction (line 1). She enters the

able income, on line 2.

less than zero.

$10,700 carryover on line 9. She also enters the

Line 3. Ida enters her net capital loss deduc-

$10,700 as her NOL deduction for 2004 on Form

tion of $1,000 on line 3.

Schedule B (Form 1045). You can use

1045, page 1, line 10, in the “After carryback”

Line 5. Although Ida’s entry on line 3 modi-

Schedule B (Form 1045) to figure your modified

column under the column for the first preceding

fies her adjusted gross income, that does not

taxable income for carryback years and your

tax year ended 12/31/04. (For an illustrated ex-

affect any other items included in her adjusted

carryover from each of those years. Do not use

ample of page 1 of Form 1045, see Illustrated

gross income. Ida enters zero on line 5.

Schedule B for a carryforward year. If your 2005

Form 1045 under How To Claim an NOL Deduc-

return includes an NOL deduction from an NOL

Line 6. Ida had itemized deductions and

tion earlier.)

year before 2005 that reduced your taxable in-

entered $1,000 on line 3, so she completes lines

Page 11

Publication 536 - Net Operating Losses (Nols) For Individuals, Estates, And Trusts - 2005 Page 11

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