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Useful Items

Trade or business,

Form 1045, Schedule A. Use Form 1045,

Schedule A, to figure an NOL. The following

You may want to see:

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Work as an employee,

discussion explains Schedule A and includes an

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illustrated example.

Casualty and theft losses,

Form (and Instructions)

First, complete Form 1045, Schedule A, line

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Moving expenses, or

1040X Amended U.S. Individual Income

1, using amounts from your return. If line 1 is a

Tax Return

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negative amount, you may have an NOL.

Rental property.

1045 Application for Tentative Refund

Next, complete the rest of Form 1045,

A loss from operating a business is the most

Schedule A, to figure your NOL.

common reason for an NOL.

See

How To Get Tax Help

near the end of

Nonbusiness deductions (line 6). Enter

this publication for information about getting

Partnerships and S corporations generally

on line 6 deductions that are not connected to

these publications and forms.

cannot use an NOL. However, partners or

your trade or business or your employment. Ex-

shareholders can use their separate shares of

amples of deductions not related to your trade or

the partnership’s or S corporation’s business

business are:

income and business deductions to figure their

NOL Steps

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Alimony paid,

individual NOLs.

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Deductions for contributions to an IRA or a

Keeping records. You should keep records

Follow Steps 1 through 5 to figure and use your

self-employed retirement plan,

for any tax year that generates an NOL for 3

NOL.

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Health savings account deduction,

years after you have used the carryback/car-

ryforward or 3 years after the carryforward ex-

Step 1. Complete your tax return for the year.

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Archer MSA deduction,

pires.

You may have an NOL if a negative figure ap-

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Most itemized deductions (except for cas-

pears on the line below:

You should attach all required docu-

ualty and theft losses, state income tax on

TIP

ments to the Form 1045 or Form

Individuals — Form 1040, line 41, or Form

business profits, and any employee busi-

1040X. For details, see the Instructions

1040NR, line 39.

ness expenses), and

for Form 1045 or Form 1040X.

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Estates and trusts — Form 1041, line 22.

The standard deduction.

What is not covered in this publication?

If the amount on that line is not negative, stop

Do not include on line 6 the deduction for

The following topics are not covered in this publi-

here — you do not have an NOL.

personal exemptions for you, your spouse, or

cation.

your dependents.

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Bankruptcies. See Publication 908, Bank-

Step 2. Determine whether you have an NOL

Do not enter business deductions on line 6.

ruptcy Tax Guide.

and its amount. See

How To Figure an

NOL,

These are deductions that are connected to your

later. If you do not have an NOL, stop here.

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trade or business. They include the following.

NOLs of corporations. See Publication

542, Corporations.

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State income tax on business profits.

Step 3. Decide whether to carry the NOL back

to a past year or to waive the carryback period

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Moving expenses.

Section references. Section references are

and instead carry the NOL forward to a future

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Educator expenses.

to the Internal Revenue Code unless otherwise

year. See

When To Use an

NOL, later.

noted.

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The deduction for the deductible part of

Step 4. Deduct the NOL in the carryback or

self-employed health insurance.

Comments and suggestions. We welcome

carryforward year. See

How To Claim an NOL

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Deduction, later. If your NOL deduction is equal

your comments about this publication and your

Domestic production activities deduction.

suggestions for future editions.

to or less than your taxable income without the

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Rental losses.

deduction, stop here — you have used up your

You can write to us at the following address:

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NOL.

Loss on the sale or exchange of business

Internal Revenue Service

real estate or depreciable property.

Individual Forms and Publications Branch

Step 5. Determine the amount of your unused

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Your share of a business loss from a part-

SE:W:CAR:MP:T:I

NOL. See

How To Figure an NOL

Carryover,

nership or an S corporation.

1111 Constitution Ave. NW, IR-6526

later. Carry over the unused NOL to the next

Washington, DC 20224

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carryback or carryforward year and begin again

Ordinary loss on the sale or exchange of

at Step 4.

stock in a small business corporation or a

small business investment company.

We respond to many letters by telephone.

Note. If your NOL deduction includes more

Therefore, it would be helpful if you would in-

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If you itemize your deductions, casualty

than one NOL amount, apply Step 5 separately

clude your daytime phone number, including the

and theft losses (even if they involve non-

to each NOL amount, starting with the amount

area code, in your correspondence.

business property) and employee busi-

from the earliest year.

You can email us at taxforms@irs.gov.

ness expenses (such as union dues,

Please put “Publications Comment” on the sub-

uniforms, tools, education expenses, and

ject line. You can also send us comments from

travel and transportation expenses).

How To Figure an NOL

Select “Comment on

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Loss on the sale of accounts receivable (if

Tax Forms and Publications” under “Information

you use an accrual method of accounting).

about.”

If your deductions for the year are more than

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Although we cannot respond individually to

Interest and litigation expenses on state

your income for the year, you may have an NOL.

each comment received, we do appreciate your

and federal income taxes related to your

There are rules that limit what you can de-

feedback and will consider your comments as

business.

duct when figuring an NOL. In general, the fol-

we revise our tax products.

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lowing items are not allowed when figuring an

Unrecovered investment in a pension or

Ordering forms and publications. Visit

NOL.

annuity claimed on a decedent’s final re-

to download forms and

turn.

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Any deduction for personal exemptions.

publications, call 1-800-829-3676, or write to the

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Payment by a federal employee to buy

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address below and receive a response within 10

Capital losses in excess of capital gains.

back sick leave used in an earlier year.

days after your request is received.

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The section 1202 exclusion of 50% of the

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A deduction allowed for state income

Internal Revenue Service

gain from the sale or exchange of qualified

taxes imposed on your wages and unem-

1201 N. Mitsubishi Motorway

small business stock.

ployment compensation.

Bloomington, IL 61705-6613

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Nonbusiness deductions in excess of non-

business income.

Nonbusiness income (line 7). Enter on

Tax questions. If you have a tax question,

line 7 only income that is not related to your

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Net operating loss deduction.

check the information available on IRS.gov or

trade or business or your employment. For ex-

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call 1-800-829-1040. We cannot answer tax

The domestic production activities deduc-

ample, enter your annuity income, dividends,

questions sent to either of the above addresses.

tion.

and interest on investments. Also, include your

Publication 536 (2011)

Page 2

Publication 536 - Net Operating Losses (Nols) For Individuals, Estates, And Trusts - 2011 Page 2

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