NOL Carryback for a Schedule C

Technical topics regarding tax preparation.
#1
RLS  
Posts:
14
Joined:
24-Apr-2014 4:50pm
Location:
Michigan
I have not filed for an NOL carryback in 25 years so I am having a bit of trouble on this one.

Taxpayer has a $400,000 loss to carry back to a year in which he had $246,000 of Schedule C income. In that year he also took a deduction for self employment tax of $10,600, a self employed health insurance deduction of $10,000 and a domestic production activities deduction of $20,000. He had less than $3,000 of interest income. Shouldn't the NOL used up in this year be $205,400?

I worked through the Form 1045 and came up with a different number. I tried to put this number in a 1040X and it is leaving the self employment tax and health insurance deduction as stated on the original return but reducing the domestic production activities deduction to a lower amount. From the 1045 it looks like the DPAD should be zero.

I have read through all the instructions for the 1045 and Pub 536 on NOLs. Scary but 25 years ago I did these on a regular basis and was actually referred to as the "NOL Queen."
 

#2
Nilodop  
Posts:
18751
Joined:
21-Apr-2014 9:28am
Location:
Pennsylvania
Carrybacks were eliminated (with some exceptions) by TCJA. What is the year of the $400k loss?
 

#3
Taxctfl  
Posts:
145
Joined:
1-Jul-2019 7:47pm
Location:
UT
I would expect to see zero DPAD.
 

#4
RLS  
Posts:
14
Joined:
24-Apr-2014 4:50pm
Location:
Michigan
The loss is from 2017.
 

#5
Posts:
300
Joined:
2-Aug-2016 6:12pm
Location:
Wasilla, AK
RLS wrote:I have not filed for an NOL carryback in 25 years so I am having a bit of trouble on this one.

Taxpayer has a $400,000 loss to carry back to a year in which he had $246,000 of Schedule C income. In that year he also took a deduction for self employment tax of $10,600, a self employed health insurance deduction of $10,000 and a domestic production activities deduction of $20,000. He had less than $3,000 of interest income. Shouldn't the NOL used up in this year be $205,400?

I worked through the Form 1045 and came up with a different number. I tried to put this number in a 1040X and it is leaving the self employment tax and health insurance deduction as stated on the original return but reducing the domestic production activities deduction to a lower amount. From the 1045 it looks like the DPAD should be zero.

I have read through all the instructions for the 1045 and Pub 536 on NOLs. Scary but 25 years ago I did these on a regular basis and was actually referred to as the "NOL Queen."


The rules for computing a carryover are different than the rules for computing an original NOL. In the case of a carryover, there is no distinction between "business" and "nonbusiness" income or deductions.

The carryover is equal to the excess of the NOL over the "modified taxable income". In other words, the modified taxable income is how much of the NOL is used up.

Here's the definition of modified taxable income from 2017 Publication 536:
IRS wrote:Modified taxable income. Your modified taxable income is your taxable income figured with the following changes.
1. You cannot claim an NOL deduction for the NOL carryover you are figuring or for any later NOL.
2. You cannot claim a deduction for capital losses in excess of your capital gains. Also, you must increase your taxable income by the amount of any section 1202 exclusion.
3. You cannot claim the domestic production activities deduction.
4. You cannot claim a deduction for your exemptions for yourself, your spouse, or dependents.
5. You must figure any item affected by the amount of your adjusted gross income after making the changes in (1), (2), and (3), above, and certain other changes to your adjusted gross income that result from (1), (2), and (3). This includes income and deduction items used to figure adjusted gross income (for example, IRA deductions), as well as certain itemized deductions. To figure a charitable contribution deduction, do not include deductions for NOL carrybacks in the change in (1) but do include deductions for NOL carryforwards from tax years before the NOL year.


Assuming he took the standard deduction, his modified taxable income would be:

Code: Select all
   3,000 Interest income
 246,000 Schedule C income
 -------
 249,000 Subtotal

 (10,600) SE tax deduction
 (10,000) SEHI deduction
  (6,350) Standard deduction
 --------
 (26,950) Total deductions

 222,050  Modified taxable income
(400,000) NOL Carryback
---------
(177,950) NOL Carryover


I think on the 1040X, the DPAD should still appear, but it won't be considered when computing the carryover (1045 Sch. B). If he had itemized deductions including medical expenses or miscellaneous deduction subject to 2% of AGI (and possibly charitable contributions), these would have to be recomputed without the benefit of the DPAD.
 

#6
Doug M  
Posts:
3558
Joined:
22-Apr-2014 1:09pm
Location:
Oregon
Form 1045 should be used, as long as you took a good look at business deductions an nonbusiness deductions. Same for non business income. Most software doesn't know business income from non-business.

Schedule A computes the amount of the NOL. Schedule B computes the NOL carryforward to the next tax year. 2015 is what it is. You are really trying to figure out how much NOL is carried to 2016.

https://www.irs.gov/pub/irs-pdf/f1045.pdf
Last edited by Doug M on 28-Aug-2019 3:58pm, edited 2 times in total.
 

#7
Doug M  
Posts:
3558
Joined:
22-Apr-2014 1:09pm
Location:
Oregon
DPAD (instructions to line 6 of Schedule A) is shown as a business deduction. As is SEHI and 1/2 SE tax.
 


Return to Taxation



Who is online

Users browsing this forum: Anderly, CoastalCPA, Google [Bot], Google Adsense [Bot], GSTaxTalk, HowardS, JoJoCPA, lckent, MAPCPA60, MilesR, missingdonut, Terry Oraha, UnlicensedTaxPro, Webster and 146 guests