I had a federal
disaster loss in 2011, #1976, and had an approximate $54,000.00 net operating loss in that year. I have a small home-based business, and normally do a schedule C
and 8829, business use of the home. This is set up as a sole proprietor
. The net is usually under $20,000.00 My 2011 income tax
To carryback the loss to 2009 and 2010, I filled out the 1040x that requires you to submit the 1045 Schedule A
and Schedule. This was also filed timely.
My understanding of Form
1045, Schedule A, line 6 Nonbusiness deductions
says enter as a positive number deductions that are not covered with a trade or business. The include: Most itemized deductions
(except for casualty and theft losses). My NOL was because of the loss from the flooding and so, I did not enter anything on that line when I submitted the form. I entered 0.
Further, the instruction say do not include any business deductions. These deductions that are connected with a trade or business. They include: If you itemized your deductions, casualty and theft losses (even if they involve nonbusiness property
.) Because I was instructed to use schedule A for casualty and theft losses in 2011, I did use Schedule A in 2011. This is another I entered 0 on line 6.
Now, the IRS
has made a mistake, I think. I got a letter back from there yesterday where they entered my NOL, made up of the casualty losses
entirely as a positive 37,000.00. This reduced my NOL carryback and also eliminates my carry forward. In other words they entered 37,000.00 on line 6 of Schedule A on the 1045 where I had had 0.
This is important that this correct because it affects my federal returns
for several years along with my state
returns. The IRS does not give tax advise on NOL's, they say it is now outside the scope of their duties due to their funding cuts. This is what they told me after I waited on hold almost three hours yesterday.
I just need confirmation that I am interpreting the handling of this line 6 correctly. I have the letter and attachments ready to forward to the IRS.