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2005 Form 1045, Schedule A, you filed

John enters -0- on line 3 of the work-

Line 13

with Form 1045 or Form 1040X. If you did

sheet because he does not have an NOL for

not have an NOL for 2005, enter the por-

2005 and did not have an NOL carryover

If you used Schedule J to figure your tax for

tion, if any, of the NOL carryovers and car-

from 2005 available to carry to 2006 and

2005 (that is, you entered the amount from

rybacks to 2005 that were not used in 2005

the 2005 Schedule J, line 22, on your 2005

later years. The NOL deduction for 2005 of

and were carried to years after 2005.

Form 1040, line 44, or on Form 1040X),

$1,900 was reduced to zero because it did

enter on line 13 the amount from your 2005

not exceed his modified taxable income of

Schedule J, line 3.

Example.

John Farmington did not use in-

$3,900. Modified taxable income is figured

come averaging for 2003, 2004, nor 2005.

by adding back the $3,000 net capital loss

If you did not use Schedule J to figure

The taxable income before subtracting ex-

your tax for 2005, enter on line 13 the tax-

deduction and the $3,200 of exemptions to

emptions on his 2005 Form 1040, line 41,

able income from your 2005 tax return (or

negative taxable income (figured without

is a negative $1,000. This amount includes

as previously adjusted by the IRS, an

regard to the NOL deduction) of $2,300.

an NOL deduction on his 2005 Form 1040,

amended return, etc.). But if that amount is

John enters $1,000 on line 4 and $3,200 on

line 21, of $1,900. The $1,900 is the por-

zero or less, complete the worksheet below

line 5. He enters $3,200 as a negative

tion of the 2004 NOL that was remaining

to figure the amount to enter on line 13.

amount on Schedule J, line 13. He enters

from 2003 to be carried to 2005. See the

$6,000 on Schedule J, line 14, and $2,800

If you did not file a tax return for 2005,

examples on pages J-2 and J-5. A deduction

use the amount you would have reported as

on Schedule J, line 15. If he uses Schedule J

for exemptions of $3,200 is shown on Form

your taxable income had you been required

to figure his tax for 2007, he will enter

1040, line 42, and line 43, taxable income,

to file a tax return. Be sure to keep all your

$2,800 on his 2007 Schedule J as his 2005

is limited to zero. John does not have an

records for 2005 until at least 3 years after

taxable income for income averaging pur-

NOL for 2005. John subtracts from the

April 16, 2007 (or the date you file your

poses.

$1,000 negative amount on Form 1040, line

2006 tax return, if later).

41, the $3,200 deduction for exemptions.

Instructions for 2005 Taxable

The result is a negative $4,200, John’s

Income Worksheet

Line 16

2005 taxable income, which he enters as a

Any net capital loss deduction on

Line 2.

positive amount on line 1 of the 2005 work-

If line 15 is zero or less, enter -0- on line 16.

your 2005 Schedule D, line 21, is not al-

sheet.

Otherwise, figure the tax on the amount on

lowed for income averaging purposes to the

line 15 using:

extent it did not reduce your capital loss

When John filed his 2005 tax return, he

•

carryover to 2006. This could happen if the

had a $3,000 net capital loss deduction on

The 2005 Tax Rate Schedules on page

taxable income before subtracting exemp-

Schedule D, line 21 (which was also en-

J-9,

tions — shown on your 2005 Form 1040,

•

tered on Form 1040, line 13), a $7,000 loss

The 2005 Qualified Dividends and

line 41 (or as previously adjusted) — was

on Schedule D, line 16, and a $5,000 capi-

Capital Gain Tax Worksheet on page J-10,

less than zero. Enter the amount by which

tal loss carryover to 2006 (his 2005 capital

your 2005 capital loss carryover to 2006

loss carryover to 2006 was $5,000, not

•

The 2005 Schedule D Tax Worksheet

(the sum of your short- and long-term capi-

$4,000, because the amount on his Form

tal loss carryovers) exceeds the excess of

(but use the 2005 Tax Rate Schedules on

1040, line 41, was a negative $1,000). John

the loss on your 2005 Schedule D, line 16,

page J-9 instead of the 2005 Tax Table

adds the $3,000 from Schedule D, line 21,

over the loss on your 2005 Schedule D, line

when figuring the tax on the Schedule D

and the $5,000 carryover. He subtracts

21.

Tax Worksheet, lines 34 and 36).

from the result the $7,000 loss on his

Schedule D, line 16, and enters $1,000 on

Line 3.

If you had an NOL for 2005, enter

line 2 of the worksheet.

the amount of that NOL from line 25 of the

2005 Taxable Income Worksheet—Line 13

Keep for Your Records

Complete this worksheet if your 2005 taxable income is zero or less. See the instructions above before completing this

worksheet.

1. Figure the taxable income from your 2005 tax return (or as previously adjusted) without limiting it to

zero. If you had an NOL for 2005, do not include any NOL carryovers or carrybacks to 2005. Enter

the result as a positive amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. If there is a loss on your 2005 Schedule D, line 21, add that loss (as a positive

amount) and your 2005 capital loss carryover to 2006. Subtract from that sum the

amount of the loss on your 2005 Schedule D, line 16, and enter the result . . . . . .

3. If you had an NOL for 2005, enter it as a positive amount. Otherwise, enter as a

positive amount the portion, if any, of the NOL carryovers and carrybacks to 2005

that were not used in 2005 and were carried to years after 2005 . . . . . . . . . . . . .

4. Add lines 2 and 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5. Subtract line 4 from line 1. Enter the result as a negative amount on Schedule J, line 13 . . . . . . . . . .

J-8

2006 Instruction 1040 Schedule J - Income Averaging For Farmers And Fishermen - Department Of Treasury - 2006 Page 8

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