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tax paid on the joint return. The refund cannot be

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

Example. Sam and Wanda filed a joint re-

more than the joint overpayment. Attach a state-

filed a separate return. See How To Figure

turn for 2004 and separate returns for 2005 and

ment showing how you figured your refund.

an NOL, earlier. If only one spouse has an

2006. In 2006, Sam had an NOL of $18,000 and

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

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

Figuring your share of a joint tax liability.

spouse’s NOL.

carry back both NOLs 2 years to their 2004 joint

There are five steps for figuring your share of the

return and claim a $20,000 NOL deduction.

refigured joint tax liability.

2. If both spouses have an NOL, multiply the

Their joint modified taxable income (MTI) for

joint NOL by a fraction, the numerator of

2004 is $15,000, and their joint NOL carryover to

1. Figure your total tax as though you had

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

filed as married filing separately.

2005 is $5,000 ($20,000 – $15,000). Sam and

the denominator of which is the total of the

Wanda each figure their separate MTI for 2004

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

2. Figure your spouse’s total tax as though

as if they had filed separate returns. Then they

spouse A’s share of the joint NOL. The

your spouse had also filed as married filing

figure their shares of the $5,000 carryover as

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

separately.

follows.

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

Example 1. Mark and Nancy are married

Step 1.

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

and file a joint return for 2006. They have an

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

$9,000

(3).

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

Wanda’s separate MTI . . . . . . . .

+ 3,000

2004, a year in which Mark and Nancy filed

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

$12,000

5. Multiply the refigured tax on your joint re-

separate returns. Figured separately, Nancy’s

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

Step 2.

2006 deductions were more than her income,

your share of the joint tax liability.

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

$15,000

and Mark’s income was more than his deduc-

Sam’s MTI ÷ total MTI

tions. Mark does not have any NOL to carry

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

× .75

Figuring your contribution toward tax

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

paid. Unless you have an agreement or clear

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

$11,250

NOL to her 2004 separate return.

evidence of each spouse’s contributions toward

Step 3.

the payment of the joint tax liability, figure your

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

$15,000

Example 2. Assume the same facts as in

contribution by adding the tax withheld on your

− 11,250

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

Example 1, except that both Mark and Nancy

wages and your share of joint estimated tax

Wanda’s share of joint MTI . . . . .

$3,750

had deductions in 2006 that were more than

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

their income. Figured separately, his NOL is

Step 4.

nal return for the carryback year resulted in an

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

Wanda’s share of joint MTI . . . . .

$3,750

overpayment, reduce your contribution by your

− 2,000

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

Wanda’s NOL deduction . . . . . . .

share of the tax refund. Figure your share of a

$5,000 joint NOL because his deductions in-

Wanda’s remaining share . . . . . .

$1,750

joint payment or refund by the same method

cluded a $200 net capital loss that is not allowed

used in figuring your share of the joint tax liabil-

Step 5.

in figuring his separate NOL. The loss is allowed

ity. Use your taxable income as originally re-

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

$11,250

in figuring their joint NOL because it was offset

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

Wanda’s remaining share . . . . . .

+ 1,750

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

above, and substitute the joint payment or re-

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

$13,000

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

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

Step 6.

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

Sam’s NOL deduction . . . . . . . . .

$18,000

$1,875).

Change in Filing Status

− 13,000

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

Joint return in previous carryback or car-

Sam’s carryover to 2005 . . . . . . .

$5,000

If you and your spouse were married and filed a

ryforward year. If only one spouse had an

Joint carryover to 2005 . . . . . . . .

$5,000

joint return for each year involved in figuring

NOL deduction on the previous year’s joint re-

− 5,000

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

NOL carrybacks and carryovers, figure the NOL

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

Wanda’s carryover to 2005 . . . . .

$-0-

deduction on a joint return as you would for an

carryover. If both spouses had an NOL deduc-

individual. However, treat the NOL deduction as

tion (including separate carryovers of a joint

Wanda’s $2,000 NOL deduction offsets

a joint NOL.

NOL, figured as explained in the previous dis-

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

If you and your spouse were married and

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

taxable income and is completely used up. She

filed separate returns for each year involved in

carryover through the following steps.

has no carryover to 2005. Sam’s $18,000 NOL

figuring NOL carrybacks and carryovers, the

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

1. Figure each spouse’s modified taxable in-

spouse who sustained the loss may take the

modified taxable income and the remaining

come as if he or she filed a separate re-

NOL deduction on a separate return.

$1,750 of Wanda’s share. His carryover to 2005

turn. See Modified taxable income under

Special rules apply for figuring the NOL car-

is $5,000.

How To Figure an NOL Carryover, later.

rybacks and carryovers of married people

whose filing status changes for any tax year

Illustrated Form 1045

2. Multiply the joint modified taxable income

involved in figuring an NOL carryback or carry-

you used to figure the joint carryover by a

over.

The following example illustrates how to use

fraction, the numerator of which is spouse

Form 1045 to claim an NOL deduction in a

A’s modified taxable income figured in (1)

Separate to joint return. If you and your

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

and the denominator of which is the total of

spouse file a joint return for a carryback or car-

Form 1045.

the spouses’ modified taxable incomes fig-

ryforward year, and were married but filed sepa-

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

rate returns for any of the tax years involved in

E x a m p l e .

M a r t h a

S a n d e r s

i s

joint modified taxable income.

figuring the NOL carryback or carryover, treat

self-employed contractor. Martha’s 2006 deduc-

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

the separate carryback or carryover as a joint

tions are more than her 2006 income because of

joint modified taxable income. This is

carryback or carryover.

a business loss. She uses Form 1045 to carry

spouse B’s share of the joint modified tax-

back her NOL 2 years and claim an NOL deduc-

Joint to separate returns. If you and your

able income.

tion in 2004. (See the filled-in Form 1045 on

spouse file separate returns for a carryback or

page 11.) Her filing status in both years was

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

carryforward year, but filed a joint return for any

single.

below zero, by spouse B’s NOL deduction.

or all of the tax years involved in figuring the

Martha figures her 2006 NOL on Schedule A,

NOL carryover, figure each of your carryovers

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

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

separately.

6. Subtract the amount figured in (5) from

Schedule A, see Illustrated Schedule A (Form

Joint return in NOL year. Figure each

spouse A’s NOL deduction. This is spouse

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

spouse’s share of the joint NOL through the

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

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

following steps.

the joint carryover is spouse B’s share.

line 25, on Form 1045, line 1a.

Publication 536 (2006)

Page 9

Publication 536 - Net Operating Losses (Nols) For Individuals, Estates, And Trusts - Internal Revenue Service - 2006 Page 9

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