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 Previous Page: Publication 536 - Net Operating Losses - How To Figure an NOL Next Page: Publication 536 - Net Operating Losses - How To Claim an NOL DeductionUse to find additional instances of index items. |
Taxmap/pubs/p536-002.htm#TXMP454bd3da |
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Generally, if you have an NOL for a tax year ending in 2004, you must carry back the entire amount of the NOL to the 2 tax years before the NOL year (the carryback period), and then carry forward any remaining NOL for up to 20 years after the NOL year (the carryforward period). You can, however, choose not to carry back an NOL and only carry it forward. See Waiving the Carryback Period, later. You cannot deduct any part of the NOL remaining after the 20-year carryforward period.
Taxmap/pubs/p536-002.htm#TXMP1cfad3b4 |
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This is the year in which the NOL occurred.
Taxmap/pubs/p536-002.htm#TXMP0ac7ed27 |
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Eligible losses and farming losses, defined below, qualify for longer carryback periods.
Taxmap/pubs/p536-002.htm#TXMP0d7d3a6f |
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The carryback period for eligible losses is 3 years. An eligible loss is any part of an NOL that:
Taxmap/pubs/p536-002.htm#TXMP1b8b7279 Qualified small business. |
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A qualified small business is a sole proprietorship or a partnership that has average annual gross receipts (reduced by returns and allowances) of $5 million or less during the 3-year period ending with the tax year of the NOL. If the business did not exist for this entire 3-year period, use the period the business was in existence.
Taxmap/pubs/p536-002.htm#TXMP23c72875 |
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The carryback period for a farming loss is 5 years. A farming loss is the smaller of:
Taxmap/pubs/p536-002.htm#TXMP30abd116 Farming business. |
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A farming business is a trade or business involving cultivation of land, raising or harvesting of any agricultural or horticultural commodity, operating a nursery or sod farm, raising or harvesting of trees bearing fruit, nuts, or other crops, or ornamental trees. The raising, shearing, feeding, caring for, training and management of animals is also considered a farming business.
A farming business does not include contract harvesting of an agricultural or horticultural commodity grown or raised by someone else. It also does not include a business in which you merely buy or sell plants or animals grown or raised by someone else.
Taxmap/pubs/p536-002.htm#TXMP01560a20 Waiving the 5-year carryback. |
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You can choose to treat a farming loss as if it were not a farming loss. If you make this choice, the carryback period will be 2 years. To make this choice, attach a statement to your 2004 income tax return filed on or before the due date (including extensions) that you are choosing to treat any 2004 farming losses as if they were not farming losses under section 172(i)(3) of the Internal Revenue Code. If you do not make this election on your timely filed return, you have until 6 months after the due date of the return (excluding extensions) to make the choice by filing an amended return. Attach a statement to your amended return and write "Filed pursuant to section 301.9100-2" at the top of the statement. Send your amended return to the same address that you filed your original return. Once you make this choice, it is irrevocable.
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You can choose not to carry back your NOL. If you make this choice, then you can use your NOL only in the 20-year carryforward period. (This choice means you also choose not to carry back any alternative tax NOL.)
To make this choice, attach a statement to your original return filed by the due date (including extensions) for the NOL year. This statement must show that you are choosing to waive the carryback period under section 172(b)(3) of the Internal Revenue Code.
If you filed your return timely but did not file the statement with it, you must file the statement with an amended return for the NOL year within 6 months of the due date of your original return (excluding extensions). Write "Filed pursuant to section 301.9100-2" at the top of the statement.
Once you elect to waive the carryback period, it is irrevocable. If you choose to waive the carryback period for more than one NOL, you must make a separate choice and attach a separate statement for each NOL year.
 | If you do not file this statement on time, you cannot waive the carryback period. |
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If you choose to carry back the NOL, you must first carry the entire NOL to the earliest carryback year. If your NOL is not used up, you can carry the rest to the next earliest carryback year, and so on.
If you do not use up the NOL in the carryback years, carry forward what remains of it to the 20 tax years following the NOL year. Start by carrying it to the first tax year after the NOL year. If you do not use it up, carry the unused part to the next year. Continue to carry any unused part of the NOL forward until the NOL is used up or you complete the 20-year carryforward period.
You started your business as a sole proprietor in 2004 and had a $42,000 NOL for the year. No part of the NOL qualifies for the 3-year or 5-year carryback. You begin using your NOL in 2002, the second year before the NOL year, as shown in the following chart.
| Year | Carryback/ Carryover | Unused Loss | |
| 2002 | $42,000 | $40,000 | |
| 2003 | 40,000 | 37,000 | |
| 2004 (NOL year) | |||
| 2005 | 37,000 | 31,500 | |
| 2006 | 31,500 | 22,500 | |
| 2007 | 22,500 | 12,700 | |
| 2008 | 12,700 | 4,000 | |
| 2009 | 4,000 | -0- | |
If your loss were larger, you could carry it forward until the year 2024. If you still had an unused 2004 carryforward after the year 2024, you could not deduct it.
Assume the same facts as in Example 1, except that $4,000 of the NOL is attributable to a casualty loss and this loss qualifies for a 3-year carryback period. You begin using the $4,000 in 2001. As shown in the following chart, $3,000 of this NOL is used in 2001. The remaining $1,000 is carried to 2002 with the $38,000 NOL that you must begin using in 2002.
| Year | Carryback/ Carryover | Unused Loss | |
| 2001 | $3,000 | $1,000 | |
| 2002 | 39,000 | 37,000 | |
| 2003 | 37,000 | 34,000 | |
| 2004 (NOL year) | |||
| 2005 | 34,000 | 28,500 | |
| 2006 | 28,500 | 19,500 | |
| 2007 | 19,500 | 9,700 | |
| 2008 | 9,700 | 1,000 | |
| 2009 | 1,000 | -0- | |
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Publication 536 - Net Operating Losses - How To Claim an NOL Deduction Use
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