Form Ia 123 - Iowa Nol Worksheet Net Operating Loss (Page 2 of 2) in pdf

IMPORTANT NOTICE: Iowa did not couple with the federal changes to the carryback rules signed in March 2002.

GENERAL INSTRUCTIONS

Federal tax payments (line 5a) may be deducted only if the tax payment

was directly attributable to Iowa-source income. This would include

Application of Net Operating Loss for Iowa Purposes:

federal taxes withheld from Iowa-source income, or the amount of

For tax years beginning after August 5, 1997, the net operating loss

additional federal tax paid for a prior year in the current tax year prorated

attributable to Iowa is subject to the federal two-year carryback and up

by the Iowa income percentage for the prior year for which the tax was

to a 20-year carryover provision. This new provision does not apply to

paid.

casualty losses and losses of farmers and small businesses attributable

Entries should be made on lines 5b and 5c only as these items relate

to losses incurred in presidentially-declared disaster areas (back 3,

directly to income allocated to Iowa on the IA 126.

forward 20). Effective for tax years beginning on or after January 1,

The Iowa-source net operating loss should be applied to the Iowa-source

1998, Iowa net operating losses from farming may be carried back five

income on Schedule IA 126 for the carryback/carryover year. This will

years and forward 20 years. However, taxpayers with net operating losses

decrease the Iowa-source net income for that tax year, creating a lower

from farming for tax years beginning in 1998 or after can elect to forego

Iowa income percentage, an increase in the nonresident/part-year resident

the five-year carryback provision and can carry back the loss two years

tax credit, and may result in an overpayment for the carryback/carryover

(three years for a loss in a national disaster area or due to a casualty,

tax year.

storm or theft.) This election can be made on the original return or on an

LINE-BY-LINE INSTRUCTIONS

amended return within the six-month period after the due date.

Election:

LINE 5c. Nonbusiness itemized deductions and nonbusiness adjustments

It there is both a federal net operating loss and an Iowa net operating

are allowed only to the extent of nonbusiness Iowa income. An itemized

loss and a timely election is made to forego the carryback period for

deduction schedule (Schedule A) for the loss year must be attached to

federal purposes, that election is binding for Iowa purposes.

the IA 1040X amended return when making an itemized deduction entry

If a net operating loss occurs for Iowa purposes but not for federal

on this line.

purposes, the loss must first be carried back and then carried forward for

LINE 9a. Your deduction for the excess of capital losses over capital

the carryback and carryforward periods applicable to that tax year. No

gains is not allowed, and you are not permitted the capital gain deduction

election to forego the carryback period is allowable.

for the tax years that the exclusion/deduction applies.

Classification of income:

If the loss year in Section A of this worksheet is 1994 or later, then any

For purposes of identifying business and nonbusiness deductions, refer

capital gain deduction must be added back to taxable income.

to the federal guidelines since they are applicable for Iowa net operating

LINE 9b. If you have filed a federal net operating loss carryback/

loss purposes.

carryforward for this same year, and due to capital losses or capital gain

In order to allow nonbusiness deductions, a schedule showing all such

exclusions in the application year you were required to decrease your

nonbusiness deductions must be provided.

medical expense deduction, casualty and theft losses, and miscellaneous

deductions, enter the total amount of those decreases on line 9b.

Nonbusiness Adjustment to Income:

LINE 11. If you claimed the Iowa standard deduction in the carryback/

Nonbusiness adjustments to Income which are most common, but not

carryforward year and you made an entry on line 9a, you may recalculate

limited to: IRA, HR-10, early withdrawal penalty, alimony paid, disability

your Iowa standard deduction and enter the appropriate increase, if any,

income exclusion and pension exclusion. Note: the health insurance

on line 11.

deduction will typically be classified as a business deduction.

LINE 13-14. If a net operating loss is greater than the adjusted taxable

Capital Gains and Losses Regarding Net Operating Loss

income in a carryback or carryover year, an IA 1040X amended return

Computation:

for the carryback year (IA 1040 for carryover year) must be attached

An individual or other noncorporate taxpayer can deduct nonbusiness

showing no taxable income. The remaining net operating loss on line 14

capital losses only to the extent of nonbusiness capital gains. Beginning

is to be carried forward to the next tax year.

with tax year 1994, any Iowa capital gain deduction must be added back

LINE 20b. Enter the itemized deductions allowed on your original Iowa

in the computation of the Iowa NOL. Further, when applying an NOL

income tax return or the revised Iowa standard deduction due to line 16.

from tax year 1994 or later, the capital gain deduction is not allowed in

The Iowa standard deduction must be refigured after application of the

the carryback or carryover tax year and must be added back to income.

NOL carryback/carryforward in any year in which the NOL is carried

Nonresidents and Part-Year Residents:

and fully absorbed.

In order for nonresidents and part-year residents to carry back or carryover

LINE 20c. If you also filed a federal net operating loss carryback claim

a net operating loss, that loss must be from Iowa sources. There is no

for this tax year and were allowed to increase your itemized deductions

authority in Iowa law for the carryback or carryover of an all-source net

for medical expenses, casualty and theft losses and miscellaneous

operating loss.

deductions due to the NOL application, enter the increase in those

Nonresident or part-year resident taxpayers should begin calculation of

deductions on line 20c.

an Iowa net operating loss with their Iowa-source net income from

LINE 22. Enter this amount directly on the “Taxable Income” line of

Schedule IA 126. Additions on lines 2a, 2b, and 2c should be made only

your IA 1040X and attach this worksheet to the IA 1040X return. No

if these items are allocable to Iowa.

entry is necessary on the IA 1040X return above the “Taxable Income”

Federal tax refunds (line 2d) need be added only in ratio with the

line in the corrected computation column, but you must continue your

taxpayer’s Iowa income percentage in the tax year generating the refund.

amended tax calculation after that line.

Self-employment tax (line 2e) is added only to the extent it is deducted

on line 5a.

e-mail: idr@iowa.gov

Web site:

See the Iowa Administrative Code cite 40.18 (While not comprehensive, it may be helpful.)

41-123b (9/21/05)

Form Ia 123 - Iowa Nol Worksheet Net Operating Loss Page 2

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