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The phaseout of the deduction for exemp-

2. Figure your spouse’s total tax as though

spouses’ NOLs figured in (1). The result is

your spouse had also filed as married filing

spouse A’s share of the joint NOL. The

tions.

separately.

rest of the joint NOL is spouse B’s share.

Do not refigure the itemized deduction for

3. Add the amounts in (1) and (2).

charitable contributions.

Example 1. Mark and Nancy are married

4. Divide the amount in (1) by the amount in

Finally, use your refigured taxable income

and file a joint return for 2005. They have an

(3).

(Form 1045, line 15, using the “After carryback”

NOL of $5,000. They carry the NOL back to

column) to refigure your total tax liability.

5. Multiply the refigured tax on your joint re-

2003, a year in which Mark and Nancy filed

Refigure your income tax, your alternative mini-

turn by the amount figured in (4). This is

separate returns. Figured separately, Nancy’s

mum tax, and any credits that are based on, or

your share of the joint tax liability.

2005 deductions were more than her income,

limited to, the amount of tax. (On Form 1045,

and Mark’s income was more than his deduc-

Figuring your contribution toward tax

use lines 16 through 25, and the “After car-

tions. Mark does not have any NOL to carry

paid. Unless you have an agreement or clear

back. Nancy can carry back the entire $5,000

ryback” column.) The earned income credit, for

evidence of each spouse’s contributions toward

NOL to her 2003 separate return.

example, may be affected by changes to ad-

the payment of the joint tax liability, figure your

justed gross income or the amount of tax (or

Example 2. Assume the same facts as in

contribution by adding the tax withheld on your

both) and, therefore, must be recomputed. If you

Example 1, except that both Mark and Nancy

wages and your share of joint estimated tax

become eligible for a credit because of the car-

had deductions in 2005 that were more than

payments or tax paid with the return. If the origi-

ryback, complete the form for that specific credit

their income. Figured separately, his NOL is

nal return for the carryback year resulted in an

(such as the EIC Worksheet) for that year.

$1,800 and hers is $3,000. The sum of their

overpayment, reduce your contribution by your

While it is necessary to refigure your income

separate NOLs ($4,800) is less than their

share of the tax refund. Figure your share of a

tax, alternative minimum tax, and credits, do not

$5,000 joint NOL because his deductions in-

joint payment or refund by the same method

refigure your self-employment tax.

cluded a $200 net capital loss that is not allowed

used in figuring your share of the joint tax liabil-

in figuring his separate NOL. The loss is allowed

ity. Use your taxable income as originally re-

Deducting a Carryforward

in figuring their joint NOL because it was offset

ported on the joint return in steps (1) and (2)

by Nancy’s capital gains. Mark’s share of their

above, and substitute the joint payment or re-

If you carry forward your NOL to a tax year after

$5,000 joint NOL is $1,875 ($5,000 × $1,800/

fund for the refigured joint tax in step (5).

the NOL year, list your NOL deduction as a

$4,800) and Nancy’s is $3,125 ($5,000 −

negative figure on the Other income line of Form

Change in Filing Status

$1,875).

1040 (line 21 for 2005). Estates and trusts in-

Joint return in previous carryback or car-

clude an NOL deduction on Form 1041 with

If you and your spouse were married and filed a

ryforward year. If only one spouse had an

other deductions not subject to the 2% limit (line

joint return for each year involved in figuring

NOL deduction on the previous year’s joint re-

15a for 2005).

NOL carrybacks and carryovers, figure the NOL

turn, all of the joint carryover is that spouse’s

You must attach a statement that shows all

deduction on a joint return as you would for an

carryover. If both spouses had an NOL deduc-

the important facts about the NOL. Your state-

individual. However, treat the NOL deduction as

tion (including separate carryovers of a joint

ment should include a computation showing

a joint NOL.

NOL, figured as explained in the previous dis-

If you and your spouse were married and

how you figured the NOL deduction. If you de-

cussion), figure each spouse’s share of the joint

filed separate returns for each year involved in

duct more than one NOL in the same year, your

carryover through the following steps.

figuring NOL carrybacks and carryovers, the

statement must cover each of them.

spouse who sustained the loss may take the

1. Figure each spouse’s modified taxable in-

NOL deduction on a separate return.

Change in Marital Status

come as if he or she filed a separate re-

Special rules apply for figuring the NOL car-

turn. See Modified taxable income under

rybacks and carryovers of married people

If you and your spouse were not married to each

How To Figure an NOL Carryover, later.

whose filing status changes for any tax year

other in all years involved in figuring NOL car-

2. Multiply the joint modified taxable income

involved in figuring an NOL carryback or carry-

rybacks and carryovers, only the spouse who

you used to figure the joint carryover by a

over.

had the loss can take the NOL deduction. If you

fraction, the numerator of which is spouse

file a joint return, the NOL deduction is limited to

A’s modified taxable income figured in (1)

Separate to joint return. If you and your

the income of that spouse.

and the denominator of which is the total of

spouse file a joint return for a carryback or car-

For example, if your marital status changes

the spouses’ modified taxable incomes fig-

ryforward year, and were married but filed sepa-

because of death or divorce, and in a later year

ured in (1). This is spouse A’s share of the

rate returns for any of the tax years involved in

you have an NOL, you can carry back that loss

joint modified taxable income.

figuring the NOL carryback or carryover, treat

only to the part of the income reported on the

the separate carryback or carryover as a joint

3. Subtract the amount figured in (2) from the

joint return (filed with your former spouse) that

carryback or carryover.

joint modified taxable income. This is

was related to your taxable income. After you

spouse B’s share of the joint modified tax-

deduct the NOL in the carryback year, the joint

Joint to separate returns. If you and your

able income.

rates apply to the resulting taxable income.

spouse file separate returns for a carryback or

carryforward year, but filed a joint return for any

4. Reduce the amount figured in (3), but not

Refund limit. If you are not married in the NOL

or all of the tax years involved in figuring the

below zero, by spouse B’s NOL deduction.

year (or are married to a different spouse), and

NOL carryover, figure each of your carryovers

5. Add the amounts figured in (2) and (4).

separately.

in the carryback year you were married and filed

6. Subtract the amount figured in (5) from

a joint return, your refund for the overpaid joint

Joint return in NOL year. Figure each

spouse A’s NOL deduction. This is spouse

tax may be limited. You can claim a refund for

spouse’s share of the joint NOL through the

A’s share of the joint carryover. The rest of

the difference between your share of the

following steps.

the joint carryover is spouse B’s share.

refigured tax and your contribution toward the

tax paid on the joint return. The refund cannot be

1. Figure each spouse’s NOL as if he or she

more than the joint overpayment. Attach a state-

filed a separate return. See How To Figure

Example. Sam and Wanda filed a joint re-

an NOL, earlier. If only one spouse has an

ment showing how you figured your refund.

turn for 2003 and separate returns for 2004 and

NOL, stop here. All of the joint NOL is that

2005. In 2005, Sam had an NOL of $18,000 and

Figuring your share of a joint tax liability.

spouse’s NOL.

Wanda had an NOL of $2,000. They choose to

There are five steps for figuring your share of the

carry back both NOLs 2 years to their 2003 joint

2. If both spouses have an NOL, multiply the

refigured joint tax liability.

return and claim a $20,000 NOL deduction.

joint NOL by a fraction, the numerator of

1. Figure your total tax as though you had

which is spouse A’s NOL figured in (1) and

Their joint modified taxable income (MTI) for

filed as married filing separately.

the denominator of which is the total of the

2003 is $15,000, and their joint NOL carryover to

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Publication 536 - Net Operating Losses (Nols) For Individuals, Estates, And Trusts - 2005 Page 8

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