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minus a $1,000 capital loss deduction. She is

Column 1, line 11. Ida’s adjusted gross in-

How To Figure an NOL

single and claimed only one personal exemption

come for 2009 was $35,000.

of $3,650. During that year, she gave $1,450 in

Column 1, line 12. She adds lines 3 through

Carryover

charitable contributions. Her medical expenses

6 and enters $1,000 on line 12. (This is her net

were $3,000. She also deducted $1,650 in taxes

capital loss deduction added back, which modi-

and $3,125 in home mortgage interest.

fies her adjusted gross income.)

If your NOL is more than your taxable income for

the year to which you carry it (figured before

Her deduction for charitable contributions

Column 1, line 13. Her modified adjusted

deducting the NOL), you may have an NOL

gross income for 2009 is now $36,000.

was not limited because her contributions,

carryover. You must make certain modifications

$1,450, were less than 50% of her adjusted

Column 1, line 14. On her 2009 tax return,

to your taxable income to determine how much

gross income. The deduction for medical ex-

she deducted $375 as medical expenses.

NOL you will use up in that year and how much

penses was limited to expenses over 7.5% of

Column 1, line 15. Her actual medical ex-

you can carry over to the next tax year. Your

adjusted gross income (.075 × $35,000 =

penses were $3,000.

carryover is the excess of your NOL deduction

$2,625; $3,000 − $2,625 = $375). The deduc-

Column 1, line 16. She multiplies her modi-

over your modified taxable income for the car-

tions for taxes and home mortgage interest were

fied adjusted gross income, $36,000, by .075.

ryback or carryforward year. If your NOL deduc-

not subject to any limits. She was able to claim

She enters $2,700 on line 16.

tion includes more than one NOL, apply the

$6,600 ($1,450 + $375 + $1,650 + $3,125) in

Column 1, line 17. The difference between

NOLs against your modified taxable income in

itemized deductions and a personal exemption

her actual medical expenses and the amount

the same order in which you incurred them,

deduction of $3,650 for 2009. She had no other

she is allowed to deduct is $300.

starting with the earliest.

deductions in 2009 (except the NOL deduction).

Column 1, line 18. The difference between

Her taxable income (figured without the NOL

Modified taxable income. Your modified tax-

her medical deduction and her modified medical

deduction) for the year was $24,750.

able income is your taxable income figured with

deduction is $75. She enters this on line 18.

Ida’s adjusted gross income in 2010 was

the following changes.

Column 1, lines 19 through 21. Ida had no

$9,225, consisting of net business income from

deduction for qualified mortgage insurance pre-

1. You cannot claim an NOL deduction for

the clothing shop of $12,225 and a net capital

miums in 2009. She skips lines 19 and 20 and

the NOL carryover you are figuring or for

loss $3,000. She did not itemize her deductions

enters zero on line 21.

any later NOL.

in 2010. She deducted the standard deduction

Column 1, line 22. She enters her modified

of $5,700 and the personal exemption deduction

2. You cannot claim a deduction for capital

adjusted gross income of $36,000 on line 22.

of $3,650. She had no other deductions in 2010

losses in excess of your capital gains.

Column 1, line 23. She had no other car-

(other than the NOL deduction). Her taxable

Also, you must increase your taxable in-

rybacks to 2009 and enters zero on line 23.

income, therefore, was ($125).

come by the amount of any section 1202

Column 1, line 24. Her modified adjusted

Ida’s $36,000 carryback will result in her hav-

exclusion claimed on Schedule D (Form

gross income remains $36,000.

ing 2009 taxable income of zero. She completes

1040).

Column 1, line 25. Her actual contributions

the column for the second preceding tax year

3. You cannot claim the domestic production

for 2009 were $1,450, which she enters on line

ended 12/31/09 on Form 1045, Schedule B, to

activities deduction.

25.

figure how much of her NOL she uses up in 2009

Column 1, line 26. She now refigures her

and how much she can carry over to 2010. She

4. You cannot claim a deduction for your ex-

charitable contributions based on her modified

completes the column for the first preceding tax

emptions for yourself, your spouse, or de-

adjusted gross income. Her contributions are

year ended 12/31/10. See the illustrated Form

pendents.

well below the 50% limit, so she enters $1,450

1045, Schedule B, shown on the following

5. You must figure any item affected by the

on line 26.

pages.

amount of your adjusted gross income af-

Column 1, line 27. The difference is zero.

Column 1, line 1. Ida enters $36,000, her

ter making the changes in (1), (2), and (3),

Column 1, lines 28 through 37. Ida had no

2011 net operating loss, on line 1.

above, and certain other changes to your

casualty losses or deductions for miscellaneous

Column 1, line 2. She enters $24,750, her

adjusted gross income that result from (1),

items in 2009. She skips lines 28 through 31 and

2009 taxable income (figured without the NOL

(2), and (3). This includes income and de-

lines 33 through 36. Ida enters zero on lines 32

deduction), on line 2.

duction items used to figure adjusted gross

and 37.

income (for example, IRA deductions), as

Column 1, line 3. Ida enters her net capital

Column 1, line 38. She combines lines 18,

well as certain itemized deductions. To fig-

loss deduction of $1,000 on line 3.

21, 27, 32, and 37 and enters $75 on line 38.

ure a charitable contribution deduction, do

Column 1, lines 4 and 5. Ida had no section

She carries this figure to line 7.

not include deductions for NOL carrybacks

1202 exclusion or domestic production activities

Column 2, line 1. Ida enters $6,525, the

in the change in (1) but do include deduc-

deduction in 2009. She enters zero on lines 4

tions for NOL carryforwards from tax years

carryback of her 2011 NOL to 2010, from col-

and 5.

before the NOL year.

umn 1, line 10, on line 1.

Column 1, line 6. Although Ida’s entry on

Column 2, line 2. She enters ($125), her

Your taxable income as modified cannot be

line 3 modifies her adjusted gross income, that

2010 taxable income, on line 2.

less than zero.

does not affect any other items included in her

adjusted gross income. Ida enters zero on line 6.

Column 2, line 3. Ida enters her net capital

Form 1045, Schedule B. You can use Form

Column 1, line 7. Ida had itemized deduc-

loss deduction of $3,000 on line 3.

1045, Schedule B, to figure your modified tax-

tions and entered $1,000 on line 3, so she com-

Column 2, lines 4 and 5. Ida had no section

able income for carryback years and your carry-

pletes lines 11 through 38 to figure her

1202 exclusion or domestic production activities

over from each of those years. Do not use Form

adjustment to itemized deductions. On line 7,

deduction in 2010. She enters zero on lines 4

1045, Schedule B, for a carryforward year. If

she enters the total adjustment from line 38.

and 5.

your 2011 return includes an NOL deduction

Column 1, line 8. Ida enters the deduction

from an NOL year before 2011 that reduced your

Column 2, line 6. Although Ida’s entry on

for her personal exemption of $3,650 for 2009.

taxable income to zero (to less than zero, if an

line 3 modifies her adjusted gross income, that

Column 1, line 9. After combining lines 2

estate or trust), see

NOL Carryover From 2011

does not affect any other items included in her

through 8, Ida’s modified taxable income is

2012, later.

adjusted gross income. Ida enters zero on line 6.

$29,475.

Column 2, line 7. Because Ida did not item-

Illustrated Form 1045,

Column 1, line 10. Ida figures her carryover

ize deductions on her 2010 tax return, she en-

to 2010 by subtracting her modified taxable in-

Schedule B

ters zero on line 7.

come (line 9) from her NOL deduction (line 1).

Column 2, line 8. Ida enters the deduction

She enters the $6,525 carryover on line 10. She

The following example illustrates how to figure

also enters the $6,525 as her NOL deduction for

for her personal exemption of $3,650 for 2010.

an NOL carryover from a carryback year. It in-

2010 on Form 1045, page 1, line 10, in the “After

Column 2, line 9. After combining lines 2

cludes a filled-in Form 1045, Schedule B.

carryback” column under the column for the first

through 8, Ida’s modified taxable income is

preceding tax year ended 12/31/10. (For an il-

Example. Ida Brown runs a small clothing

$6,525.

lustrated example of page 1 of Form 1045, see

shop. In 2011, she has an NOL of $36,000 that

Column 2, line 10. Ida figures her carryfor-

Illustrated Form 1045

under

How To Claim an

she carries back to 2009. She has no other

ward to 2012 by subtracting her modified tax-

NOL

Deduction, earlier.)

carrybacks or carryforwards to 2009.

able income (line 9) from her NOL deduction

Next, Ida completes column 2 for the first

Ida’s adjusted gross income in 2009 was

(line 1). She enters the $0 carryover on line 10.

$35,000, consisting of her salary of $36,000

preceding tax year ended 12/31/10.

Page 12

Publication 536 (2011)

Publication 536 - Net Operating Losses (Nols) For Individuals, Estates, And Trusts - 2011 Page 12

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