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If your loss were larger, you could carry it

Form 1045. You can apply for a quick refund

on or limited to a percentage of your adjusted

by filing Form 1045. This form results in a tenta-

gross income. Refigure the following items.

forward until the year 2026. If you still had an

tive adjustment of tax in the carryback year. See

unused 2006 carryforward after the year 2026,

•

The itemized deduction for medical ex-

the Form 1045 illustrated at the end of this dis-

you could not deduct it.

penses.

cussion.

•

The itemized deduction for casualty

If the IRS refunds or credits an amount to you

Example 2. Assume the same facts as in

losses.

from Form 1045 and later determines that the

Example 1, except that $4,000 of the NOL is

refund or credit is too much, the IRS may assess

•

attributable to a casualty loss and this loss quali-

Miscellaneous itemized deductions subject

and collect the excess immediately.

fies for a 3-year carryback period. You begin

to the 2% limit.

Generally, you must file Form 1045 on or

using the $4,000 in 2003. As shown in the fol-

•

The overall limit on itemized deductions.

after the date you file your tax return for the NOL

lowing chart, $3,000 of this NOL is used in 2003.

year, but not later than one year after the NOL

•

The remaining $1,000 is carried to 2004 with the

The phaseout of the deduction for exemp-

year. If the last day of the year falls on a Satur-

$38,000 NOL that you must begin using in 2004.

tions.

day, Sunday, or holiday, the form will be consid-

ered timely if postmarked on the next business

Carryback/ Unused

Do not refigure the itemized deduction for

day. For example, if you are a calendar year

Year

Carryover

Loss

charitable contributions.

taxpayer with a carryback from 2006 to 2004,

Finally, use your refigured taxable income

2003 . . . . . . . . . . . .

$3,000

$1,000

you must file Form 1045 on or after the date you

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

file your tax return for 2006, but no later than

2004 . . . . . . . . . . . .

39,000

37,000

column) to refigure your total tax liability.

December 31, 2007.

2005 . . . . . . . . . . . .

37,000

34,000

Refigure your income tax, your alternative mini-

2006 (NOL year) . . . .

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

Form 1040X. If you do not file Form 1045, you

2007 . . . . . . . . . . . .

34,000

28,500

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

can file Form 1040X to get a refund of tax be-

2008 . . . . . . . . . . . .

28,500

19,500

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

cause of an NOL carryback. File Form 1040X

2009 . . . . . . . . . . . .

19,500

9,700

ryback” column.) The earned income credit, for

within 3 years after the due date, including ex-

2010 . . . . . . . . . . . .

9,700

1,000

example, may be affected by changes to ad-

tensions, for filing the return for the NOL year.

2011 . . . . . . . . . . . .

1,000

-0-

justed gross income or the amount of tax (or

For example, if you are a calendar year taxpayer

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

and filed your 2003 return by the April 15, 2004,

become eligible for a credit because of the car-

due date, you must file a claim for refund of 2001

ryback, complete the form for that specific credit

tax because of an NOL carryback from 2003 by

(such as the EIC Worksheet) for that year.

How To Claim

April 17, 2007.

While it is necessary to refigure your income

Attach a computation of your NOL using

an NOL Deduction

tax, alternative minimum tax, and credits, do not

Schedule A (Form 1045) and, if it applies, your

refigure your self-employment tax.

NOL carryover using Schedule B (Form 1045),

discussed later.

If you have not already carried the NOL to an

Deducting a Carryforward

earlier year, your NOL deduction is the total

Refiguring your tax. To refigure your total tax

NOL. If you carried the NOL to an earlier year,

If you carry forward your NOL to a tax year after

liability for a carryback year, first refigure your

your NOL deduction is the NOL minus the

the NOL year, list your NOL deduction as a

adjusted gross income for that year. (On Form

amount you used in the earlier year or years.

1045, use lines 10 and 11 and the After car-

negative figure on the Other income line of Form

If you carry more than one NOL to the same

ryback column for the applicable carryback

1040 or Form 1040NR (line 21 for 2006). Es-

year, your NOL deduction is the total of these

year.) Use your adjusted gross income after

tates and trusts include an NOL deduction on

carrybacks and carryovers.

applying the NOL deduction to refigure income

Form 1041 with other deductions not subject to

or deduction items that are based on, or limited

the 2% limit (line 15a for 2006).

NOL more than taxable income. If your NOL

to, a percentage of your adjusted gross income.

You must attach a statement that shows all

is more than the taxable income of the year you

Refigure the following items.

the important facts about the NOL. Your state-

carry it to (figured before deducting the NOL),

ment should include a computation showing

1. The special allowance for passive activity

you generally will have an NOL carryover to the

how you figured the NOL deduction. If you de-

losses from rental real estate activities.

next year. See How To Figure an NOL Carry-

duct more than one NOL in the same year, your

over, later, to determine how much NOL you

statement must cover each of them.

2. Taxable social security and tier 1 railroad

have used and how much you carry to the next

retirement benefits.

Change in Marital Status

year.

3. IRA deductions.

Deducting a Carryback

If you and your spouse were not married to each

4. Excludable savings bond interest.

other in all years involved in figuring NOL car-

5. Excludable employer-provided adoption

rybacks and carryovers, only the spouse who

If you carry back your NOL, you can use either

benefits.

had the loss can take the NOL deduction. If you

Form 1045 or Form 1040X. You can get your

file a joint return, the NOL deduction is limited to

6. Student loan interest deduction.

refund faster by using Form 1045, but you have

the income of that spouse.

a shorter time to file it. You can use Form 1045

7. Tuition and fees deduction.

For example, if your marital status changes

to apply an NOL to all carryback years. If you

If more than one of these items apply,

because of death or divorce, and in a later year

use Form 1040X, you must use a separate Form

refigure them in the order listed above, using

you have an NOL, you can carry back that loss

1040X for each carryback year to which you

your adjusted gross income after applying the

only to the part of the income reported on the

apply the NOL.

NOL deduction and any previous item. (Enter

joint return (filed with your former spouse) that

Estates and trusts not filing Form 1045 must

your NOL deduction on Form 1045, line 10. On

was related to your taxable income. After you

file an amended Form 1041 (instead of Form

line 11, using the “After carryback” column,

deduct the NOL in the carryback year, the joint

1040X) for each carryback year to which NOLs

enter your adjusted gross income after applying

rates apply to the resulting taxable income.

are applied. Use a copy of the appropriate year’s

the above refigured items but without the NOL

Form 1041, check the Amended return box, and

deduction.)

Refund limit. If you are not married in the NOL

follow the Form 1041 instructions for amended

Next, refigure your taxable income. (On

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

returns. Include the NOL deduction with other

Form 1045, use lines 12 through 15 and the

in the carryback year you were married and filed

deductions not subject to the 2% limit (line 15a).

“After carryback” column.) Use your refigured

a joint return, your refund for the overpaid joint

Also, see the special procedures for filing an

adjusted gross income (Form 1045, line 11, us-

tax may be limited. You can claim a refund for

amended return due to an NOL carryback, ex-

ing the “After carryback” column) to refigure cer-

the difference between your share of the

plained under Form 1040X, later.

tain deductions and other items that are based

refigured tax and your contribution toward the

Page 8

Publication 536 (2006)

Publication 536 - Net Operating Losses (Nols) For Individuals, Estates, And Trusts - Internal Revenue Service - 2006 Page 8

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