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Jason M. Tyra, CPA, Certified Public Accountant (CPA)

Category: Finance

Satisfied Customers: 177

Experience: Principal at Jason M. Tyra, CPA, PLLC

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I have net operating loss (NOL). I plan to carry it forward.

Customer Question

I have net operating loss (NOL). I plan to carry it forward. Say my loss for 2015 was 300k. I "use up" 100k in 2015 to bring my total of line 41 of form 1040 to "0". I have remaining 200k (300k-100k). For 2016 do I need to "use up" just enough of the remaining 200k to bring my line 41 on form 1040 to "0" for this year as well? Or I can have a positive number on line 41 for year 2016, such that I would be able to transfer more of the remaining NOL to 2017 tax return? Would appreciate a link explaining on how to do it.

You can carry forward a NOL up to twenty years. Negative income is the whole reason why you have the NOL to carryforward, so you only use enough each year to reduce your income to $0.

Here is a link to the IRS website that discusses how to show the carryforward: https://www.irs.gov/publications/p536/ar02.html#en_US_2015_publink1000177402

which line on 1040 I should try to bring to "0" every year I have negative income because of the remaining NOL? If I have a negative income in the years following initial loss (because of the initial year NOL), would I be able to use "schedule A" for those following years, or should I be able to only take a standard deduction? Would my personal exemptions, charitable contributions and state tax income tax refunds come into play at all those following years when I have a negative income because of NOL?

Your taxable income should be $0 after your NOL carryover, assuming you have enough to wipe out whatever income you had for the year. The line number changes from year to year.

To calculate your carryover, take your income after your deductions, but before your exemptions. For 2015, this appears on line 41.

You can't use personal exemptions for the carryover, but you can use them in years when you carried over a NOL amount. The NOL carryover should be reported as a negative number on the other income line, so you will use only enough to reduce your taxable income to $0 for that year (exemptions included).

I see it is the carryover that will be reduced by personal exemption. So when I go to next year I should take line 43 of the prior year (negative number) and add personal exemptions amount to arrive to the remaining NOL for the following year? In other words if on 2016 tax return I had "-$100,000" then the remaining NOL for 2017 would be "-$100,000 + personal exemptions".

To use the carryover, calculate your return as normal and then add whatever amount is necessary to reduce your taxable income to $0. Also attach a statement showing the details of the carryover.

You only need to back out your exemptions in the first year. You don't have to recalculate the carryover each year, but you can't claim more in any subsequent year than you have to carryforward. In your example, the remaining NOL for 2017 would be the carryover from 2015, minus whatever amount you added to the "Other Income" line as a carryforward in 2016.