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2004 is $5,000 ($20,000 – $15,000). Sam and

carryback year. It includes a filled-in page 1 of

Itemized deductions:

Medical expenses

Wanda each figure their separate MTI for 2003

Form 1045.

[$6,000 − ($40,000

as if they had filed separate returns. Then they

× 7.5%)] . . . . . . .

$3,000

figure their shares of the $5,000 carryover as

Example. Martha Sanders is a self-em-

State income tax . .

+ 2,000

follows.

ployed contractor. Martha’s 2005 deductions

Real estate tax . . .

+ 4,000

are more than her 2005 income because of a

Home mortgage

Step 1.

business loss. She uses Form 1045 to carry

interest . . . . . . . .

+ 5,000

Sam’s separate MTI . . . . . . . . . .

$9,000

back her NOL 2 years and claim an NOL deduc-

−14,000

Total itemized deductions . . . .

Wanda’s separate MTI . . . . . . . .

+ 3,000

tion in 2003. (See the filled-in Form 1045 on

Less:

Total MTI . . . . . . . . . . . . . . . . .

$12,000

page 10.) Her filing status in both years was

− 3,050

Exemption . . . . . . . . . . . . . . .

single.

Step 2.

2003 Taxable income after

Martha figures her 2005 NOL on Schedule A,

Joint MTI . . . . . . . . . . . . . . . . .

$15,000

carryback . . . . . . . . . . . . . . . .

$22,950

Sam’s MTI ÷ total MTI

Form 1045 (not shown). (For an example using

($9,000 ÷ $12,000) . . . . . . . . . . .

× .75

Martha then completes lines 10 through 25,

Schedule A, see Illustrated Schedule A (Form

using the “After carryback” column under the

1045) under How To Figure an NOL, earlier.)

Sam’s share of joint MTI . . . . . . .

$11,250

column for the second preceding tax year ended

She enters the $10,000 NOL from Schedule A,

Step 3.

12/31/03. On line 10, Martha enters her $10,000

line 24, on Form 1045, line 1a.

Joint MTI . . . . . . . . . . . . . . . . .

$15,000

NOL deduction. Her new adjusted gross income

Martha completes lines 10 through 25, using

− 11,250

Sam’s share of joint MTI . . . . . . .

on line 11 is $40,000 ($50,000 − $10,000). To

the “Before carryback” column under the column

Wanda’s share of joint MTI . . . . .

$3,750

complete line 12, she must refigure her medical

for the second preceding tax year ended 12/31/

Step 4.

expense deduction using her new adjusted

03 on page 1 of Form 1045 using the following

Wanda’s share of joint MTI . . . . .

$3,750

gross income. Her refigured medical expense

amounts from her 2003 return.

− 2,000

deduction is $3,000 [$6,000 − ($40,000 ×

Wanda’s NOL deduction . . . . . . .

Wanda’s remaining share . . . . . .

$1,750

2003 Adjusted gross income . . .

$50,000

7.5%)]. This increases her total itemized deduc-

tions to $14,000 [$13,250 + ($3,000 − $2,250)].

Itemized deductions:

Step 5.

Medical expenses

Martha uses her refigured taxable income

Sam’s share of joint MTI . . . . . . .

$11,250

[$6,000 − ($50,000

($23,000) from line 15, and the tax tables in her

Wanda’s remaining share . . . . . .

+ 1,750

× 7.5%)] . . . . . . .

$2,250

2003 Form 1040 instructions to find her income

Joint MTI to be offset . . . . . . . . .

$13,000

State income tax . .

+ 2,000

tax. She enters the new amount, $3,096, on line

Step 6.

Real estate tax . . .

+ 4,000

16, and her new total tax liability, $9,216, on line

Sam’s NOL deduction . . . . . . . . .

$18,000

Home mortgage

25.

− 13,000

Joint MTI to be offset . . . . . . . . .

interest . . . . . . . .

+ 5,000

Martha used up her $10,000 NOL in 2003 so

Sam’s carryover to 2004 . . . . . . .

$5,000

Total itemized deductions . . . .

$13,250

she does not complete a column for the first

Exemption . . . . . . . . . . . . . . .

$3,050

Joint carryover to 2004 . . . . . . . .

$5,000

preceding tax year ended 12/31/2004. The de-

Income tax . . . . . . . . . . . . . . .

$5,241

− 5,000

Sam’s carryover . . . . . . . . . . . .

crease in tax because of her NOL deduction

Self-employment tax . . . . . . . . .

$6,120

Wanda’s carryover to 2004 . . . . .

$ – 0 –

(line 27) is $2,145.

Martha refigures her taxable income for 2003

Martha files Form 1045 after filing her 2005

Wanda’s $2,000 NOL deduction offsets

after carrying back her 2005 NOL as follows:

return, but no later than January 2, 2007 (since

$2,000 of her $3,750 share of the joint modified

December 31, 2006 is a Sunday). She mails it to

taxable income and is completely used up. She

2003 Adjusted gross income . . .

$50,000

the Internal Revenue Service Center where she

has no carryover to 2004. Sam’s $18,000 NOL

Less:

filed her 2005 return and attaches a copy of her

deduction offsets all of his $11,250 share of joint

−10,000

NOL from 2005 . . . . . . . . . . . .

2005 return (including the applicable forms and

modified taxable income and the remaining

2003 Adjusted gross income after

schedules).

$1,750 of Wanda’s share. His carryover to 2004

carryback . . . . . . . . . . . . . . . .

$40,000

is $5,000.

Less:

Illustrated Form 1045

The following example illustrates how to use

Form 1045 to claim an NOL deduction in a

Page 9

Publication 536 - Net Operating Losses (Nols) For Individuals, Estates, And Trusts - 2005 Page 9

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