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losses without regard to the special 5-year car-

1. The excess of the NOL for the year over

When To Use an NOL

the specified liability loss for the year to

ryback rule. If you filed your original return on

time, you can make this choice on an amended

which a 10-year carryback applies, or

return filed within 6 months after the due date of

Generally, if you have an NOL for a tax year

2. The total of any qualified GO Zone casu-

the return (excluding extensions). Attach an

ending in 2011, you must carry back the entire

alty loss and any depreciation allowable for

election statement to your amended return, and

amount of the NOL to the 2 tax years before the

any specified GO Zone extension nonresi-

write “Filed pursuant to section 301.9100-2” at

NOL year (the carryback period), and then carry

dential real property and residential rental

forward any remaining NOL for up to 20 years

the top of the statement. Once made, this choice

property placed in service before Decem-

after the NOL year (the carryforward period).

is irrevocable.

ber 31, 2011 (even if you elected not to

You can, however, choose not to carry back an

claim the special GO Zone depreciation

NOL and only carry it forward. See

Waiving the

Qualified disaster loss. The carryback pe-

allowance for such property).

Carryback

Period, later. You cannot deduct any

riod for a qualified disaster loss is 5 years. Only

part of the NOL remaining after the 20-year

For a list of counties and parishes included in

the qualified disaster loss portion of the NOL can

carryforward period.

the GO Zone, see Notice 2007-36, 2007-17

be carried back 5 years. A qualified disaster loss

I.R.B. 1000, available at

is the smaller of:

NOL year. This is the year in which the NOL

2007-17_IRB/ar12.html.

occurred.

1. The sum of:

Waiving the 5-year carryback. You can

Exceptions to 2-Year

choose to figure the carryback period for a quali-

a. Any losses attributable to a federally

fied GO Zone loss without regard to the special

Carryback Rule

declared disaster and occurring before

5-year carryback rule. To make this choice for

January 1, 2010 in the disaster area,

2011, attach to your 2011 income tax return filed

plus

Eligible losses, farming losses, qualified disas-

by the due date (including extensions) a state-

ter losses, qualified GO Zone losses, and speci-

b. Any allowable qualified disaster ex-

ment that you are choosing to treat any 2011

fied liability losses, all defined next, qualify for

penses (even if you did not choose to

qualified GO Zone losses without regard to the

longer carryback periods.

treat those expenses as deductions in

special 5-year carryback rule. If you filed your

the current year), or

Eligible loss. The carryback period for eligible

original return on time, you can make this choice

losses is 3 years. Only the eligible loss portion of

on an amended return filed within 6 months after

2. The NOL for the tax year.

the NOL can be carried back 3 years. An eligible

the due date of the return (excluding exten-

loss is any part of an NOL that:

sions). Attach a statement to your amended

Qualified disaster expenses. A qualified

return, and write “Filed pursuant to section

•

Is from a casualty or theft, or

disaster expense is any capital expense paid or

301.9100-2” at the top of the statement. Once

•

incurred in connection with a trade or business

Is attributable to a federally declared dis-

made, this choice is irrevocable.

or with business-related property which is:

aster for a qualified small business or cer-

tain qualified farming businesses.

•

Specified liability loss. The carryback period

For the abatement or control of hazardous

for a specified liability loss is 10 years. Only the

substances that were released as a result

Qualified small business. A qualified small

specified liability loss portion of the NOL can be

of a federally declared disaster,

business is a sole proprietorship or a partner-

carried back 10 years. Generally, a specified

•

ship that has average annual gross receipts

For the removal of debris from, or the

liability loss is a loss arising from:

(reduced by returns and allowances) of $5 mil-

demolition of structures on, real property

•

lion or less during the 3-year period ending with

Product liability and expenses incurred in

which is business-related property dam-

the tax year of the NOL. If the business did not

the investigation or settlement of, or oppo-

aged or destroyed as a result of a feder-

exist for this entire 3-year period, use the period

sition to, product liability claims, or

ally declared disaster, or

the business was in existence.

•

An act (or failure to act) that occurred at

For the repair of business-related property

An eligible loss does not include a farming

least 3 years before the beginning of the

damaged as a result of a federally de-

loss, a qualified disaster loss, or a qualified GO

loss year and resulted in a liability under a

clared disaster.

Zone loss.

federal or state law requiring:

Business-related property is property held for

Farming loss. The carryback period for a

use in a trade or business, property held for the

farming loss is 5 years. Only the farming loss

1. Reclamation of land,

production of income, or inventory property.

portion of the NOL can be carried back 5 years.

2. Dismantling of a drilling platform,

A farming loss is the smaller of:

Note. Section 198A allows taxpayers to

3. Remediation of environmental contamina-

1. The amount that would be the NOL for the

treat certain capital expenses (qualified disaster

tion, or

tax year if only income and deductions at-

expenses) as deductions in the year the ex-

tributable to farming businesses were

4. Payment under any workers compensation

penses were paid or incurred.

taken into account, or

act.

Excluded losses. A qualified disaster loss

2. The NOL for the tax year.

does not include any losses from property used

Any loss from a liability arising from (1)

in connection with any private or commercial

through (4) above can be taken into account as

Farming business. A farming business is a

golf course, country club, massage parlor, hot

a specified liability loss only if you used an ac-

trade or business involving cultivation of land,

tub facility, suntan facility, or any store for which

crual method of accounting throughout the pe-

raising or harvesting of any agricultural or horti-

the principal business is the sale of alcoholic

riod in which the act (or failure to act) occurred.

cultural commodity, operating a nursery or sod

beverages for consumption off premises.

For details, see section 172(f) of the Internal

farm, raising or harvesting of trees bearing fruit,

Revenue Code.

A qualified disaster loss also does not in-

nuts, or other crops, or ornamental trees. The

clude any losses from any gambling or animal

raising, shearing, feeding, caring for, training,

Waiving the 10-year carryback. You can

racing property. Gambling or animal racing

and management of animals is also considered

choose to figure the carryback period for a spec-

property is any equipment, furniture, software,

a farming business.

ified liability loss without regard to the special

or other property used directly in connection with

A farming business does not include contract

10-year carryback rule. To make this choice for

harvesting of an agricultural or horticultural com-

gambling, the racing of animals, or the on-site

2011 attach to your 2011 income tax return filed

modity grown or raised by someone else. It also

viewing of such racing, and the portion of any

by the due date (including extensions) a state-

does not include a business in which you merely

real property (determined by square footage)

ment that you are choosing to treat any 2011

buy or sell plants or animals grown or raised by

that is dedicated to gambling, the racing of ani-

specified liability losses without regard to the

someone else.

mals, or the on-site viewing of such racing, un-

special 10-year carryback rule. If you filed your

less this portion is less than 100 square feet.

original return on time, you can make this choice

Waiving the 5-year carryback. You can

on an amended return filed within 6 months after

choose to figure the carryback period for a farm-

Qualified GO Zone loss. The carryback pe-

the due date of the return (excluding exten-

ing loss without regard to the special 5-year

riod for a qualified GO Zone loss is 5 years. Only

sions). Attach a statement to your amended

carryback rule. To make this choice for 2011,

the qualified GO Zone loss portion of the NOL

return and write “Filed pursuant to section

attach to your 2011 income tax return filed by the

can be carried back 5 years. A qualified GO

301.9100-2” at the top of the statement. Once

due date (including extensions) a statement that

you are choosing to treat any 2011 farming

Zone loss is the smaller of:

made, this choice is irrevocable.

Publication 536 (2011)

Page 7

Publication 536 - Net Operating Losses (Nols) For Individuals, Estates, And Trusts - 2011 Page 7

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