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Domestic production activities deduction

share of nonbusiness income from partnerships

Glenn’s deductions exceed his income by

(line 23). You cannot take the domestic pro-

$11,800 ($15,500 − $3,700). However, to figure

and S corporations.

duction activities deduction when figuring your

Do not include on line 7 the income you

whether he has an NOL, certain deductions are

NOL. Enter on line 23 any domestic production

receive from your trade or business or your

not allowed. He uses Form 1045, Schedule A, to

activities deduction claimed on your return.

employment. This includes salaries and wages,

figure his NOL. See the illustrated Form 1045,

self-employment income, unemployment com-

Schedule A, later.

NOLs from other years (line 24). You cannot

pensation included in your gross income, and

The following items are not allowed on Form

deduct any NOL carryovers or carrybacks from

your share of business income from partner-

1045, Schedule A.

other years. Enter the total amount of your NOL

ships and S corporations. Also, do not include

deduction for losses from other years.

rental income or ordinary gain from the sale or

Nonbusiness net short-term capital

loss . . . . . . . . . . . . . . . . . . . . . . . . $1,000

other disposition of business real estate or

Illustrated Form 1045,

Nonbusiness deductions

depreciable business property.

(standard deduction, $5,800) minus

Schedule A

Adjustment for section 1202 exclusion (line

nonbusiness income (interest, $425) . .

5,375

17). Enter on line 17 any gain you excluded

Deduction for personal exemption . . . .

3,700

The following example illustrates how to figure

under section 1202 on the sale or exchange of

Total adjustments to net loss

$10,075

an NOL. It includes filled-in pages 1 and 2 of

qualified small business stock.

Form 1040 and Form 1045, Schedule A.

Adjustments for capital losses (lines 19 – 22).

The amount deductible for capital losses is lim-

Therefore, Glenn’s NOL for 2011 is figured

Example. Glenn Johnson is in the retail re-

ited based on whether the losses are business

as follows:

cord business. He is single and has the following

capital losses or nonbusiness capital losses.

income and deductions on his Form 1040 for

Glenn’s total 2011 income . . . . . . .

$3,650

2011.

Nonbusiness capital losses. You can de-

Less:

duct your nonbusiness capital losses (line 2)

Glenn’s original 2011

INCOME

only up to the amount of your nonbusiness capi-

total deductions . . . . . . $15,500

tal gains without regard to any section 1202

Wages from part-time job . . . . . . . .

$1,225

−

Reduced by the

exclusion (line 3). If your nonbusiness capital

Interest on savings . . . . . . . . . . . . .

425

− 5,425

disallowed items . . . . . .

10,075

losses are more than your nonbusiness capital

Net long-term capital gain on sale of

Glenn’s NOL for 2011 . . . . . . . . . .

$1,775

gains without regard to any section 1202 exclu-

real estate used in business . . . . . . .

2,000

sion, you cannot deduct the excess.

Glenn’s total income

$3,650

Business capital losses. You can deduct

your business capital losses (line 11) only up to

DEDUCTIONS

the total of:

Net loss from business (gross

•

Your nonbusiness capital gains that are

income of $67,000 minus expenses

more than the total of your nonbusiness

of $72,000) . . . . . . . . . . . . . . . . .

$5,000

capital losses and excess nonbusiness

Net short-term capital loss

deductions (line 10), and

on sale of stock . . . . . . . . . . . . . .

1,000

Standard deduction . . . . . . . . . . .

5,800

•

Your total business capital gains without

Personal exemption . . . . . . . . . . .

3,700

regard to any section 1202 exclusion (line

12).

Glenn’s total deductions

$15,500

Publication 536 (2011)

Page 3

Publication 536 - Net Operating Losses (Nols) For Individuals, Estates, And Trusts - 2011 Page 3

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