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Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 2429
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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I am a CPA with a client that filed Married Filing Jointly ...

Customer Question

I am a CPA with a client that filed Married Filing Jointly (MFJ) in 2005. In that year, her husband passed away. The return showed a Net Operating Loss (NOL) that was partially attributable to both taxpayers, but mostly to the husband. No election to forego the carryback was made. Therefore the NOL will be carried back two years and forward 20. The husband and wife filed MFJ in 2003 and 2004. She filed Single in 2006. When the 2006 return was prepared, the entire NOL was used on the 2006 return, but upon re-reading the IRS Publication 536, I think that the NOL should have been separated between husband and wife and only the wife portion should be carried forward to 2006. If that is the case, the 2003, 2004, and 2005 returns would need to be recomputed as MFS so that the appropriate portion of the NOL carried back and NOL used can be allocated to each taxpayer. Is my thinking correct on this? The taxpayer also had a General Business Credit carryover. Do similar rules apply?
Submitted: 9 years ago.
Category: Tax
Expert:  Anne replied 9 years ago.


Thank you for using justanswer. You are absolutely correct in your thinking. NOL'S are tied to the individual tax payer, and unfortunately, if the tp dies before they use them all, then the unused NOL dies with them. (Probably not the answer you wanted I'm sure)

Since you had already been to the IRS 's website and referenced the Pub, I went to this webiste:

Net Operating Loss (NOL) Helpful Hints and pulled this for you:

'Error: Failure to separate all items shown on the return and tax account when an allocation is required because of a change in filing status or marital status.

Solution: Attach a complete breakdown of each spouse's income; a detailed capital gain calculation; deductions, including a list of total Schedule A Itemized Deductions; exemptions; taxable income; credits; other taxes, including separate Forms 6251, Alternative Minimum Tax; federal tax withheld; payments; offsets; and refunds. For information about figuring the NOL carrybacks and carryovers for married people whose filing status changes for any tax year involved in figuring an NOL carryback or carryover, see Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts"

Also Pub 536 definitely limits the income to the spouse: "If you file a joint return, the NOL deduction is limited to the income of that spouse. "

You didn't mention which business credit you were questioning, but I wouldn't be suprised if they worked the same way. You're on the right path.

Let me know if there's anything else I can help with.

Positive feedback and bonuses are always appreciated

Anne and 2 other Tax Specialists are ready to help you
Customer: replied 9 years ago.
Thanks so much! It is helpful with something like this to find someone who agrees with your analysis. The credit is the Rehabilitation Credit under the Investment Tax Credit. Do you think that this credit will go with the taxpayer as well or split equally if both own the property?
Expert:  Anne replied 9 years ago.

Hi againCustomer/p>

Rehabilitation credit is different. It can be transferred to either the buyer of the property, or if the property changes hands, it can then be passed to the new owner. I admit to having limited exposure to this credit, but I did find the FAQ site that was very helpful, and if I were doing anything with this credit, I would start here.

Get Frequently Asked Questions (PDF) about the Tax Aspects of Historic Preservation.

I agree with you regarding getting other opinoins. No matter how long we've been in the business, we just can't possibly know it all....there's just too much to

Best of luck with these......


Customer: replied 9 years ago.
Expert:  Anne replied 9 years ago.

You're welcome andThank you!