us internal revenue service: p536--1999

8/14/2019 US Internal Revenue Service: p536--1999

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ContentsImportant Change for 1999 ............... 1

Introduction ........................................ 1

NOL Steps ........................................... 2

How To Figure an NOL ...................... 2Illustrated Schedule A

(Form 1045) ............................. 3

When To Use an NOL ........................ 7

How To Claim an NOL Deduction .... 7Deducting a Carryback ................... 7Deducting a Carryforward ............... 8Change in Marital Status ................ 8Change in Filing Status .................. 8Illustrated Form 1045 ...................... 9

How To Figure an NOL Carryover .... 11Illustrated Schedule B

(Form 1045) ............................. 11

NOL Carryover From 1999 to 2000 .. 14Worksheet Instructions ................... 14

How To Get More Information .......... 17

Index .................................................... 18

Important Changefor 1999Photographs of missing children. TheInternal Revenue Service is a proud partnerwith the National Center for Missing and Ex-ploited Children. Photographs of missingchildren selected by the Center may appearin this publication on pages that would other-wise be blank. You can help bring thesechildren home by looking at the photographsand calling 1800THELOST (18008435678) if you recognize a child.

IntroductionIf your deductions for the year are more thanyour income for the year, you may have a netoperating loss (NOL). You can use an NOLby deducting it from your income in anotheryear or years. This publication discussesNOLs for individuals, estates, and trusts. Itexplains how to figure an NOL, when to useit, how to claim an NOL deduction, and howto figure an NOL carryover.

To have an NOL, your loss must becaused by one of the following kinds of de-ductions.

From a trade or business. From your work as an employee. For casualty and theft losses.

A loss from operating a business is themost common reason for an NOL.

Partnerships and S corporations generallycannot use an NOL. But partners or share-holders can use their separate shares of thepartnership's or S corporation's business in-come and business deductions to figure theirindividual NOLs.

Departmentof theTreasury

InternalRevenueService

Publica tion 53 6Cat. No. 46569U

Ne t Operat ingLosses Tra de or Business Employee Business

Expenses Casualty and Theft

For use in preparing

1999Returns


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What is not covered in this publication.The following topics are not covered in thispublication.

Bankruptcies. See Publication 908,Bankruptcy Tax Guide .

NOLs of Corporations. See Publication542, Corporations .

Specified liability losses. See the Form1045 instructions.

Useful ItemsYou may want to see:

Form (and Instructions)

1040X Amended U.S. Individual IncomeTax Return

1045 Application for Tentative RefundSee How To Get More Information near

the end of this publication for informationabout getting these forms.

NOL StepsFigure and use your NOL in the followingsteps:

Step 1. Complete your tax return for the year.You may have an NOL if a negative figureappears on the line below:

Individuals line 37 of Form 1040.

Estates and trusts line 22 of Form 1041.

If the amount on that line is zero or more,stop here you do not have an NOL.

Step 2. Determine whether you have an NOLand its amount. See How To Figure an NOL,later. If you do not have an NOL, stop here.

Step 3. Decide whether to carry the NOLback to a past year or to choose to waive thecarryback period and instead carry the NOLforward to a future year. See When To Use an NOL, later.

Step 4. Deduct the NOL in the carryback orcarryforward year. See How To Claim an NOLDeduction, later. If your NOL deduction isequal to or smaller than your taxable incomewithout the deduction, stop here you haveused up your NOL.

Step 5. Determine the amount of your un-used NOL. See How To Figure an NOL Car- ryover, later. Carry over the unused NOL tothe next carryback or carryforward year andbegin again at Step 4.

Note. If your NOL deduction includesmore than one NOL amount, apply Step 5separately to each NOL amount, starting withthe amount from the earliest year.

How To Figure an NOLIf your deductions for the year are more thanyour income for the year, you have a potentialNOL.

There are rules that limit what you candeduct when figuring an NOL. In general, youcannot deduct the following items.

1) Personal exemptions.

2) Capital losses in excess of capital gains.

3) The section 1202 exclusion of 50% ofthe gain from the sale or exchange ofqualified small business stock.

4) Nonbusiness deductions in excess ofnonbusiness income.

5) Net operating loss deduction.

Schedule A (Form 1045). Use Schedule A(Form 1045) to figure an NOL. This dis-cussion explains Schedule A and includes anillustrated example.

First, complete lines 13 of Schedule A,using amounts from your return. If line 3 is anegative amount, you have a net loss and apotential NOL.

Next, complete the rest of Schedule A tofigure your NOL. Adjust the amount on line3 for deductions that are allowed when figur-ing your taxable income, but not when figuringan NOL. The following discussions explainthese adjustments.

Adjustment for exemptions (line 4). Youcannot deduct your personal exemption oryour exemptions for dependents. An estateor trust cannot deduct its exemption amount.Your adjustment is the total amount you de-ducted for exemptions.

Adjustment for nonbusiness deductions(line 12). You can deduct your nonbusinessdeductions (line 9) only up to the total of:

1) Your nonbusiness capital gains that aremore than your nonbusiness capitallosses (not including any section 1202exclusion shown as a loss on ScheduleD of Form 1040)(line 8), and

2) Your nonbusiness income (line 10).

Your adjustment is your nonbusiness de-ductions that are more than the total of (1)and (2).

Nonbusiness deductions (line 9). Enteron line 9 as your nonbusiness deductionsonly those that are not related to your tradeor business or your employment. For exam-ple, enter your deductions for alimony, con-tributions to an IRA or other self-employedretirement plan, medical expenses, taxes, in-terest, and charitable contributions. If you donot itemize deductions, include your standarddeduction.

Do not include your deduction for casualtyand theft losses, your deduction for one-halfof your self-employment tax, or your de-duction for self-employed health insurance.Treat these items as business deductions.

Also, do not include your deductions forexpenses that are ordinary and necessary in

carrying on your trade or business or youremployment, or related deductions for thefollowing items.

1) Employee business expenses, such as,union dues, uniforms, tools, educationexpenses, and travel and transportationexpenses.

2) Your share of a business loss from apartnership or an S corporation.

3) Moving expenses.

4) State income tax on business profits.

5) Interest and litigation expenses on stateand federal income taxes related to yourbusiness income.

6) Payments by a federal employee to buyback sick leave used in an earlier year.

7) Loss on property you rent out.

8) Loss on the sale or exchange of busi-ness real estate or depreciable businessproperty.

9) Loss on the sale of accounts receivable(if you use an accrual method of ac-counting).

10) Loss on the sale or exchange of stock ina small business corporation or a smallbusiness investment company, if treatedas ordinary loss.

11) Unrecovered investment in a pension orannuity claimed on a decedent's finalreturn.

Nonbusiness income (line 10). Enter online 10 only income that is not related to yourtrade or business or your employment. Forexample, enter your annuity income, divi-dends, and interest from investments. Also,include your share of nonbusiness incomefrom partnerships and S corporations.

Do not include the income you receivefrom your trade or business or your employ-ment. This includes salaries and wages, self-employment income, and your share of busi-ness income from partnerships and Scorporations. Also, do not include rental in-come or ordinary gain from the sale or otherdisposition of business real estate or depre-ciable business property.

Adjustment for section 1202 exclusion(line 20). Enter on line 20 any gain you ex-cluded on the sale or exchange of qualifiedsmall business stock.

Adjustments for capital losses (lines 24and 25). You can deduct your nonbusinesscapital losses (line 5) only up to the amountof your nonbusiness capital gains (line 6),

without regard to any section 1202 exclusion.If your nonbusiness capital losses are morethan your nonbusiness capital gains, youcannot deduct the excess.

You can deduct your business capitallosses (line 14) only up to the total of:

1) Your nonbusiness capital gains that aremore than the total of your nonbusinesscapital losses and excess nonbusinessdeductions (line 13), and

2) Your total business capital gains (line15), without regard to any section 1202exclusion.

The adjustment on line 24 is your capitalloss deduction (line 22) that is more than yournet capital loss without regard to any section1202 exclusion (line 21).

Your adjustment on line 25 is your non-deductible capital losses (line 18) that aremore than the nondeductible net capital losson your return (line 23), without regard to anysection 1202 exclusion claimed on ScheduleD. (You had a nondeductible net capital lossif your net capital loss was more than yourcapital loss deduction.)

Adjustment for NOL deduction (line 26).You cannot deduct any NOL carryovers orcarrybacks from other years. Your adjustmentis the total amount of your NOL deduction forlosses from other years.

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Illustrated Schedule A(Form 1045)The following example illustrates how to fig-ure an NOL. It includes filled in pages 1 and2 of Form 1040 and Schedule A (Form 1045).

Example. Glenn Johnson is in the retailrecord business. He is single and has thefollowing income and deductions on his Form1040 for 1999.

Glenn's deductions exceed his income by$9,400 ($13,050 $3,650). However, to fig-

INCOME ure whether he has an NOL, he must modifycertain deductions. He uses Schedule A(Form 1045) to figure his NOL. See the illus-trated Schedule A (Form 1045) included later.

Glenn cannot deduct the following itemson Schedule A (Form 1045).

When these items are eliminated, Glenn'snet loss is reduced to $1,775 ($9,400 $7,625). This is his NOL for 1999.

Wages from part-time job .......................... $1,225Interest on savings .................................... 425Net long-term capital gain on sale of realestate used in business ............................. 2,000

Glenn's total income $3,650

DEDUCTIONSNonbusiness net short-term capital loss ..... $1,000

Net loss from business (gross income of$67,000 minus expenses of $72,000) ....... $5,000

Nonbusiness deductions(standard deduction, $4,300) minusnonbusiness income (interest, $425) .......... 3,875Net short-term capital loss

on sale of stock ......................................... 1,000 Personal exemption ..................................... 2,750Standard deduction .................................... 4,300

Total adjustments to net loss $7,625Personal exemption ................................... 2,750Glenn's total deductions $13,050

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< 2,350 >

4,300

< 6,650 >2,750

-0 -

2-5-20 0 0 Self-employedGlenn M. Johnson

Enter your itemized deductions from Schedule A, line 28, OR standard deductionshown on the left. But see page 30 to find your standard deduction if you checked anybox on line 35a or 35b or if someone can claim you as a dependent

Add lines 57, 58, 59a, and 60 through 63. These are your total payments

Page 2Form 1040 (1999)

Amount from line 33 (adjusted gross income)34 34

Check if:35aTax andCredits 35aAdd the number of boxes checked above and enter the total here

Single:$4,300

If you are married filing separately and your spouse itemizes deductions oryou were a dual-status alien, see page 30 and check here

b35b

36

36

37Subtract line 36 from line 3437

38If line 34 is $94,975 or less, multiply $2,750 by the total number of exemptions claimed online 6d. If line 34 is over $94,975, see the worksheet on page 31 for the amount to enter

38

39Taxable income. Subtract line 38 from line 37. If line 38 is more than line 37, enter -0-3940 40

4141 Credit for child and dependent care expenses. Attach Form 2441

43Credit for the elderly or the disabled. Attach Schedule R

44

Foreign tax credit. Attach Form 1116 if required45

Other. Check if from47

48

46

49Add lines 41 through 47. These are your total credits

47

50

Subtract line 48 from line 40. If line 48 is more than line 40, enter -0-48

51Self-employment tax. Attach Schedule SE

49

OtherTaxes 52

Alternative minimum tax. Attach Form 625150

65

51Social security and Medicare tax on tip income not reported to employer. Attach Form 4137

54Tax on IRAs, other retirement plans, and MSAs. Attach Form 5329 if required53

55Add lines 49 through 55. This is your total tax56 56

Federal income tax withheld from Forms W-2 and 109957 57581999 estimated tax payments and amount applied from 1998 return58

Payments

59a

59a

61Amount paid with request for extension to file (see page 48)6162Excess social security and RRTA tax withheld (see page 48)62

64Other payments. Check if from63

66a66a

67 67

If line 64 is more than line 56, subtract line 56 from line 64. This is the amount you OVERPAID

6868

Amount of line 65 you want REFUNDED TO YOURefund

69

Amount of line 65 you want APPLIED TO YOUR 2000 ESTIMATED TAX

Estimated tax penalty. Also include on line 68Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge andbelief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

69

You were 65 or older, Blind; Spouse was 65 or older, Blind.

a Form 3800 b Form 8396c Form 8801 d Form (specify)

a Form 2439 b Form 4136

54Household employment taxes. Attach Schedule H 55

63

AmountYou Owe

SignHere

DateYour signature

Keep a copyfor yourrecords.

DateSpouse s signature. If a joint return, BOTH must sign.

Preparer s SSN or PTINDatePreparer ssignature

Check ifself-employed

PaidPreparersUse Only

Firm s name (or yoursif self-employed) andaddress

EIN

ZIP code

Your occupation

Spouse s occupation

Tax (see page 31). Check if any tax is from

If line 56 is more than line 64, subtract line 64 from line 56. This is the AMOUNT YOU OWE .For details on how to pay, see page 49

b

Have itdirectlydeposited!See page 48and fill in 66b,66c, and 66d.

Routing number

Account number

c Checking SavingsType:

a Form(s) 8814 Form 4972

b

d

64

42

44Adoption credit. Attach Form 8839

5253

Advance earned income credit payments from Form(s) W-2

65

Child tax credit (see page 33)Education credits. Attach Form 8863

4243

4546

Additional child tax credit. Attach Form 881260 60

Head ofhousehold:$6,350Married filing

jointly orQualifyingwidow(er):$7,200Marriedfilingseparately:$3,600

StandardDeductionfor MostPeople

Joint return?See page 18.

Daytime telephonenumber (optional)( )

Earned income credit. Attach Sch. EIC if you have a qualifying childb

and typeNontaxable earned income: amount

Form 1040 (1999)

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P r o o f a

s o f

O c t o b e r 2

2, 1 9 9 9

( s u b j e c t t o

c h a n g e

)

< 2,350 >

4,3002,750

7,050< 9,400 >

2,750

1,00 0

1,00 0

-0 -4,300

425

425

3,875

-0 -

2,000

2,000-0 -

1,00 0

-0 -

-0 -

< 1,775 >

1,00 0

Page 2Form 1045 (1999)

Schedule A Net Operating Loss (NOL). See page 4 of the instructions.

1Adjusted gross income from your 1999 Form 1040, line 34. Estates and trusts, skip lines 1 and 21Deductions (individuals only):2

2aEnter the amount from your 1999 Form 1040, line 36a2bb Enter your deduction for exemptions from your 1999 Form 1040, line 38

( )2cAdd lines 2a and 2bc 3Combine lines 1 and 2c.

Estates and trusts, enter the taxable income from Form 1041, line 22.3

Note: If line 3 is zero or more, do not complete the rest of the schedule. You do not have an NOL.Deduction for exemptions from line 2b above.Estates and trusts, enter the exemption amount from Form 1041, line 20.

4 4

Total nonbusiness capital losses before limitation. Enter as a positivenumber

55

6Total nonbusiness capital gains (without regard to any section 1202exclusion)

6

If line 5 is more than line 6, enter the difference; otherwise, enter -0-7 7

If line 6 is more than line 5, enter the difference;otherwise, enter -0-

88

9Nonbusiness deductions. See page 4 of the instructions9 Nonbusiness income other than capital gains.See page 4 of the instructions

1010

11Add lines 8 and 1011

12If line 9 is more than line 11, enter the difference; otherwise, enter -0-12If line 11 is more than line 9, enter the difference;otherwise, enter -0-. But do not enter morethan line 8

13

131414 Total business capital losses before limitation. Enter as a positive number

1515 Total business capital gains (without regard to

any section 1202 exclusion)

1616 Add lines 13 and 1517 If line 14 is more than line 16, enter the difference; otherwise, enter -0- 17

18 18

19

19

25

22

23

Net operating loss. Combine lines 3, 4, 12, 20, 24, 25, and 26. If the result is less than zero, enterit here and on page 1, line 1a. If the result is zero or more, you do not have a net operating loss

26Net operating loss deduction for losses from other years. Enter as a positive number

Add lines 7 and 17

If line 21 is more than line 22, enter the difference; otherwise, enter -0-

25

26

27

Enter the loss, if any, from line 17 of Schedule D (Form 1040). (Estates andtrusts, enter the loss, if any, from line 16, column (3), of Schedule D (Form1041).) Enter as a positive number. If you do not have a loss on that line(and do not have a section 1202 exclusion), skip lines 19 through 24 andenter on line 25 the amount from line 18

Subtract line 20 from line 19. If zero or less, enter -0-2021

2223

20

Enter the loss, if any, from line 18 of Schedule D (Form 1040). (Estates andtrusts, enter the loss, if any, from line 17 of Schedule D (Form 1041).) Enteras a positive number

Section 1202 exclusion. Enter as a positive number21

Subtract line 23 from line 18. If zero or less, enter -0-

27

2424 If line 22 is more than line 21, enter the difference; otherwise, enter -0-

Form 1045 (1999)

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When To Use an NOLGenerally, you must carry back the entireamount of the NOL to the 2 tax years beforethe NOL year (the carryback period), and thencarry forward any remaining NOL for up to20 years after the NOL year (the carryforwardperiod). You can, however, choose not tocarry back an NOL and carry it forward only.See Waiving the carryback period, later. TheNOL year is the year in which the NOL oc-

curred. You cannot deduct any part of theNOL remaining after the 20-year carryforwardperiod.

Exceptions to 2-year carryback rule. Eli-gible losses and farming losses qualify forlonger carryback periods.

Eligible loss. The carryback period foran eligible loss is 3 years. An eligible loss isany part of an NOL that:

1) Is from a casualty or theft, or

2) Is attributable to a Presidentially de-clared disaster for a qualified smallbusiness or a farming business (definedlater).

An eligible loss does not include a farmingloss (explained next), unless you choose totreat the farming loss as if it were not afarming loss.

Farming loss. The carryback period fora farming loss is 5 years. A farming loss is thesmaller of:

1) The amount which would be the NOL forthe tax year if only income and de-ductions attributable to farming busi-nesses were taken into account, or

2) The NOL for the tax year.

You can choose to treat a farming loss as

if it were not a farming loss. If you make thischoice, the carryback period will be 2 years(3 years if the loss is an eligible loss). Tomake this choice, attach a statement to your1999 income tax return filed on or before thedue date (including extensions) that you arechoosing to treat any 1999 farming losses asif they were not farming losses. Also, if youfiled your return timely without making thatchoice, you may still make the choice by filingan amended return within 6 months of the duedate of the return (excluding extensions). At-tach a statement to your amended return andwrite Filed pursuant to section 301.91002on the statement. File your amended returnat the same address that you filed your ori-ginal return. Once you make this choice, it isirrevocable.

Farming business. A farming businessis a trade or business involving the cultivationof land, the raising or harvesting of any agri-cultural or horticultural commodity, operatinga nursery or sod farm, the raising or harvest-ing of trees bearing fruit, nuts, or other crops,or ornamental trees. The raising, shearing,feeding, caring for, training, and managementof animals is also considered a farming busi-ness.

A farming business does not include con-tract harvesting of an agricultural or horticul-tural commodity grown or raised by someoneelse. It also does not include a business inwhich you merely buy or sell plants or animalsgrown or raised by someone else.

Qualified small business. A qualifiedsmall business is a sole proprietorship or apartnership that has average annual grossreceipts (reduced by returns and allowances)of $5 million or less during the 3-year periodending with the tax year of the NOL. If thebusiness did not exist for this entire 3-yearperiod, use the period the business was inexistence.

Waiving the carryback period. You canchoose not to carry back your NOL. If youmake this choice, then you can use your NOLonly in the 20-year carryforward period. (Thischoice means you also choose not to carryback any alternative tax NOL.)

To make this choice, attach a statementto your tax return filed by the due date (in-cluding extensions) for the NOL year or to anamended return for the NOL year filed within6 months of the due date of your original re-turn (excluding extensions). This statementmust show that you are choosing to waive thecarryback period under section 172(b)(3) ofthe Internal Revenue Code.

CAUTION!

If you do not file this statement on time, you cannot waive the carryback period. 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 301.91002 on the statement.

Once you make this choice, you cannot change it (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 NOLyear.

How to use the NOL. If you choose to carryback the NOL, you must first carry the entireNOL to the earliest carryback year. If yourNOL is not used up, you can carry the rest tothe next earliest carryback year, and so on.

If you do not use up the NOL in the 2carryback years, carry forward what remainsof it to the 20 tax years following the NOLyear. Start by carrying it to the first tax yearafter the NOL year. If you do not use it up,carry the unused part to the next year. Con-tinue to carry any unused part of the NOL untilyou complete the 20-year carryforward pe-riod.

Example 1. You started your businessas a sole proprietor in 1999 and had a$42,000 NOL for the year. No part of the NOLqualifies for the 3-year or 5-year carrybackperiod. You begin using your NOL in 1997,the second year before the NOL year, asshown in the following chart.

If your loss were larger, you could carry itforward until the year 2019. If you still had anunused 1999 carryforward after the year2019, you could not deduct it.

Example 2. Assume the same facts asin Example 1, except that $4,000 of the NOLis attributable to a casualty loss and this loss

qualifies for a 3-year carryback period. Youbegin using the $4,000 in 1996. As shown inthe following chart, $3,000 of this NOL is usedin 1996. The remaining $1,000 is carried to1997 along with the $38,000 NOL that youmust begin using in 1997.

How To Claiman NOL DeductionIf you have not already carried the NOL to anearlier year, your NOL deduction is the totalNOL. If you carried the NOL to an earlier year,your NOL deduction is the NOL minus theamount you used in the earlier year or years.

If you carry more than one NOL to thesame year, your NOL deduction is the totalof these carrybacks and carryovers.

NOL more than taxable income. If your NOLis more than the taxable income of the yearyou carry it to (figured before deducting theNOL), you generally will have an NOL carry-over to the next year. See How To Figure an NOL Carryover, later, to determine how muchNOL you have used and how much you carryto the next year.

Deducting a CarrybackIf you carry back your NOL, you can use ei-ther Form 1045 or Form 1040X. You can getyour refund faster by using Form 1045, but

you have a shorter time to file it. You can useForm 1045 to apply an NOL to all carrybackyears. If you use Form 1040X, you must usea separate Form 1040X for each carrybackyear to which you apply the NOL.

Estates and trusts not filing Form 1045must file an amended Form 1041 (instead ofForm 1040X) for each carryback year towhich NOLs are applied. Use a copy of theappropriate year's Form 1041, check theAmended return box, and follow the Form1041 instructions for amended returns. In-clude the NOL deduction with other de-ductions not subject to the 2% limit (line 15afor 1997 and 1998). Also, see the specialprocedures for filing an amended return dueto an NOL carryback, explained under Form 1040X, later.

Form 1045. You can apply for a quick refundby filing Form 1045. This form results in atentative adjustment of tax in the carrybackyear. See the Form 1045 illustrated at the endof this discussion.

If the IRS refunds or credits an amount toyou from Form 1045 and later determines thatthe refund or credit is too much, the IRS mayassess and collect the excess immediately.

You must file Form 1045 on or after thedate you file your tax return for the NOL year,but not later than one year after the NOL year.For example, if you are a calendar year tax-payer with a carryback from 1999 to 1997,you must file Form 1045 on or after the date

YearCarryback/Carryover

UnusedLoss

1996 . ... .. ... ... ... ... ... ... ... ... .. $3,000 $1,0001997 . ... .. ... ... ... ... ... ... ... ... .. 39,000 37,0001998 . ... .. ... ... ... ... ... ... ... ... .. 37,000 34,0001999 (NOL year) .............

2000 . ... .. ... ... ... ... ... ... ... ... .. 34,000 28,5002001 . ... .. ... ... ... ... ... ... ... ... .. 28,500 19,5002002 ................................ 19,500 9,7002003 ................................ 9,700 1,0002004 ................................ 1,000 0

YearCarryback/Carryover

UnusedLoss

1997 . .. .. .. .. .. .. .. .. .. .. .. .. .. .. .. . $42,000 $40,0001998 .. ... ... ... ... ... ... ... .. ... ... . 40,000 37,0001999 (NOL year) .............2000 .. ... ... ... ... ... ... ... .. ... ... . 37,000 31,5002001 .. ... ... ... ... ... ... ... .. ... ... . 31,500 22,5002002 .. ... ... ... ... ... ... ... .. ... ... . 22,500 12,7002003 ................................ 12,700 4,0002004 ................................ 4,000 0

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you file your tax return for 1999, but no laterthan January 2, 2001. (Since December 31,2000, falls on a Sunday and January 1, 2001,is a holiday, the due date is extended toJanuary 2, 2001.)

Form 1040X. If you do not file Form 1045,you can file Form 1040X to get a refund of taxbecause of an NOL carryback. File Form1040X within 3 years after the due date, in-cluding extensions, for filing the return for theNOL year. For example, if you are a calendaryear taxpayer and filed your 1996 return bythe April 15, 1997, due date, you must file aclaim for refund of 1994 tax because of anNOL carryback from 1996 by April 17, 2000.(Since April 15, 2000, falls on a Saturday, thedue date is extended to April 17, 2000).

Attach a computation of your NOL usingSchedule A (Form 1045) and, if it applies,your NOL carryover using Schedule B (Form1045), discussed later.

Refiguring your tax. To refigure your totaltax liability for a carryback year, first refigureyour adjusted gross income for that year. (OnForm 1045, use lines 10 through 12 and theAfter carryback column for the applicablecarryback year.) Use your adjusted gross in-come after applying the NOL deduction torefigure income or deduction items that arebased on, or limited to, a percentage of youradjusted gross income. Refigure the followingitems.

1) The special allowance for passive activ-ity losses from rental real estate activ-ities.

2) Taxable social security and tier 1 railroadretirement benefits.

3) IRA deductions.

4) Excludable savings bond interest.

5) Excludable employer-provided adoptionbenefits.

6) Student loan interest deduction.

If more than one of these items apply, re-figure them in the order listed above, usingyour adjusted gross income after applying theNOL deduction and any previous item. (Online 10 of Form 1045, using the Aftercarryback column, enter your adjusted grossincome after applying the above refigureditems, but without the NOL deduction. Enteryour NOL deduction on line 11.)

Next, refigure your taxable income. (OnForm 1045, use lines 13 through 16 and theAfter carryback column.) Use your refiguredadjusted gross income (line 12 of Form 1045,using the After carryback column) to refigurecertain deductions and other items that arebased on, or limited to, a percentage of your

adjusted gross income. Refigure the followingitems.

1) The itemized deduction for medical ex-penses.

2) The itemized deduction for casualtylosses.

3) Certain miscellaneous itemized de-ductions.

4) The overall limit on itemized deductions.

5) The phaseout of the deduction for ex-emptions.

Do not refigure the itemized deduction forcharitable contributions.

Finally, use your refigured taxable income(line 16 of Form 1045, using the Aftercarryback column) to refigure your total taxliability. Refigure your income tax, your al-ternative minimum tax, and any credits thatare based on, or l imited to, the amount of tax.(On Form 1045, use lines 17 through 26, andthe After carryback column.) The earnedincome credit, for example, may be affectedby changes to adjusted gross income or theamount of tax (or both) and, therefore, mustbe recomputed. If you become eligible for acredit because of the carryback, complete theform for that specific credit (such as ScheduleEIC) for that year.

While it is necessary to refigure your in-come tax, alternative minimum tax, andcredits do not refigure your self-employment tax.

Deducting a CarryforwardIf you carry forward your NOL to a tax yearafter the NOL year, list your NOL deductionas a negative figure on the Other incomeline of Form 1040 (line 21 for 1999). Estatesand trusts include an NOL deduction on Form1041 with other deductions not subject to the2% limit (line 15a for 1999).

You must attach a statement that showsall the important facts about the NOL. Yourstatement should include a computationshowing how you figured the NOL deduction.If you deduct more than one NOL in the sameyear, your statement must cover each ofthem.

Change in Marital StatusIf you and your spouse were not married toeach other in all years involved in figuringNOL carrybacks and carryovers, only thespouse who had the loss can take the NOLdeduction. If you file a joint return, the NOLdeduction is limited to the income of thatspouse.

For example, if your marital statuschanges because of death or divorce, and ina later year you have an NOL, you can carryback that loss only to the part of the incomereported on a joint return (filed with your for-mer spouse) that was your taxable income.After you deduct the NOL in the carrybackyear, the joint rates apply to the resultingtaxable income.

Refund limit. If you are not married in theNOL year (or are married to a differentspouse), and in the carryback year you weremarried and filed a joint return, your refund forthe overpaid joint tax may be limited. You canclaim a refund for the difference between yourshare of the refigured tax and your contribu-tion toward the tax paid on the joint return.

The refund cannot be more than the jointoverpayment. Attach a statement showinghow you figured your refund.

Figuring your share of a joint tax liability. There are five steps for figuring yourshare of the refigured joint tax liability.

1) Figure your total tax as though you hadfiled as married filing separately.

2) Figure your spouse's total tax as thoughyour spouse had also filed as marriedfiling separately.

3) Add the amounts in (1) and (2).

4) Divide the amount in (1) by the amountin (3).

5) Multiply the refigured tax on your jointreturn by the amount figured in (4). Thisis your share of the joint tax liability.

Figuring your contribution toward tax paid. Unless you have an agreement or clearevidence of each spouse's contributions to-ward the payment of the joint tax liability, fig-ure your contribution by adding the tax with-held on your wages and your share of jointestimated tax payments or tax paid with thereturn. If the original return for the carrybackyear resulted in an overpayment, reduce yourcontribution by your share of the tax refund.Figure your share of a joint payment or refundby the same method used in figuring yourshare of the joint tax liability. Use your taxableincome as originally reported on the joint re-turn in steps (1) and (2) (above), and substi-tute the joint payment or refund for the refig-ured joint tax in step (5).

Change in Filing StatusIf you and your spouse were married and fileda joint return for each year involved in figuringNOL carrybacks and carryovers, figure theNOL deduction on a joint return as you wouldfor an individual. However, treat the NOL de-duction as a joint NOL. Figure it from the jointNOLs.If you and your spouse were married andfiled separate returns for each year involvedin figuring NOL carrybacks and carryovers,the spouse who sustained the loss may takethe NOL deduction on a separate return.

CAUTION!

Special rules apply for figuring the NOL carrybacks and carryovers of married people whose filing status

changes for any tax year involved in figuring an NOL carryback or carryover.

Separate to joint return. If you and yourspouse file a joint return for a carryback orcarryforward year, and were married but filedseparate returns for any of the tax years in-volved in figuring the NOL carryback or car-ryover, treat the separate carryback or carry-over as a joint carryback or carryover.

Joint to separate returns. If you and yourspouse file separate returns for a carrybackor carryforward year, but filed a joint return forany or all of the tax years involved in figuringthe NOL carryover, figure each of your carry-overs separately.

Joint return in NOL year. Figure eachspouse's share of the joint NOL in the fol-lowing steps:

1) Figure each spouse's NOL as if he orshe filed a separate return. See How To Figure an NOL, earlier. If only onespouse has an NOL, stop here. All ofthe joint NOL is that spouse's NOL.

2) If both spouses have an NOL, multiplythe joint NOL by a fraction, the numera-tor of which is spouse A's NOL figuredin (1) and the denominator of which isthe total of the spouses' NOLs figured in(1). The result is spouse A's share of the

joint NOL. The rest of the joint NOL isspouse B's share.

Example 1. Mark and Nancy are marriedand file a joint return for 1999. They have anNOL of $5,000. They carry the NOL back to1997, a year in which Mark and Nancy filedseparate returns. Figured separately, Nancy's1999 deductions were more than her income,

Page 8


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and Mark's income was more than his de-ductions. Mark does not have any NOL tocarry back. Nancy can carry back the entire$5,000 NOL to her 1997 separate return.

Example 2. Assume the same facts asin Example 1, except that both Mark andNancy had deductions in 1999 that were morethan their income. Figured separately, hisNOL is $1,800 and hers is $3,000. (The sumof their separate NOLs ($4,800) is less thantheir $5,000 joint NOL because his de-ductions included a $200 net capital loss thatis not allowed in figuring his separate NOL.The loss is allowed in figuring their joint NOLbecause it was offset by Nancy's capitalgains.) Mark's share of their $5,000 joint NOLis $1,875 ($5,000 $1,800/$4,800) andNancy's is $3,125 ($5,000 $1,875).

Joint return in previous carryback or carryforward year. If only one spouse hadan NOL deduction on the previous year's jointreturn, all of the joint carryover is thatspouse's carryover. If both spouses had anNOL deduction (including separate carryoversof a joint NOL, figured as explained in theprevious discussion), figure each spouse'sshare of the joint carryover in the followingsteps.

1) Figure each spouse's modified taxableincome as if he or she filed a separatereturn. See Modified taxable income un-der How To Figure an NOL Carryover,later.

2) Multiply the joint modified taxable in-come you used to figure the joint carry-over by a fraction, the numerator ofwhich is spouse A's modified taxable in-come figured in (1) and the denominatorof which is the total of the spouses'modified taxable incomes figured in (1).This is spouse A's share of the jointmodified taxable income.

3) Subtract the amount figured in (2) fromthe joint modified taxable income. Thisis spouse B's share of the joint modifiedtaxable income.

4) Reduce the amount figured in (3), butnot below zero, by spouse B's NOL de-duction.

5) Add the amounts figured in (2) and (4).

6) Subtract the amount figured in (5) fromspouse A's NOL deduction. This isspouse A's share of the joint carryover.The rest of the joint carryover is spouseB's share.

Example. Sam and Wanda filed a jointreturn for 1997 and separate returns for 1998and 1999. In 1999, Sam had an NOL of$18,000 and Wanda had an NOL of $2,000.They carry back both NOLs to their 1997 jointreturn and claim a $20,000 NOL deduction.

Their joint modified taxable income (MTI)for 1997 is $15,000, and their joint NOL car-ryover to 1998 is $5,000 ($20,000 $15,000).They figure their shares of the $5,000 carry-over as follows:

Wanda's $2,000 NOL deduction offsets$2,000 of her $3,750 share of the joint modi-fied taxable income and is completely usedup. She has no carryover to 1998. Sam's$18,000 NOL deduction offsets all of his$11,250 share of joint modified taxable in-come and the remaining $1,750 of Wanda'sshare. His carryover to 1998 is $5,000.

Illustrated Form 1045The following example illustrates how to useForm 1045 to claim an NOL deduction in acarryback year. It includes a filled in page 1of Form 1045.

Example. Martha Sanders is a self-employed contractor. Martha's 1999 de-ductions are more than her 1999 income be-cause of a business loss. She uses Form1045 to carry back her NOL and claim anNOL deduction in 1997. (See the filled in

Form 1045 included here.) Her filing status inboth years was single.

Martha figures her 1999 NOL on ScheduleA, Form 1045 (not shown). (For an exampleusing Schedule A, see Illustrated Schedule A (Form 1045) under How To Figure an NOL,earlier.) She enters the $10,000 NOL fromline 27 of Schedule A on line 1a of page 1 ofForm 1045.

Martha completes lines 10 through 26,using the Before carryback column underthe column labeled, 2nd preceding tax yearended 12/31/97 on page 1 of Form 1045using the following amounts from her 1997return.

Martha then completes lines 10 through26, using the After carryback column underthe column labeled, 2nd preceding tax yearended 12/31/97. On line 11, Martha entersher $10,000 NOL deduction. Her new ad-

justed gross income on line 12, is $40,000($50,000 $10,000). To complete line 13,she must refigure her medical expense de-duction using her new adjusted gross income.Her refigured medical expense deduction is$3,000 [$6,000 ($40,000 7.5%)]. This in-creases her total deductions to $14,000[$13,250 + ($3,000 $2,250)].

Martha uses her refigured taxable income($23,350) from line 16, and the tax tables inher 1997 Form 1040 instructions to find herincome tax. She enters the new amount,$3,506, on line 17, and her new total tax li-ability, $9,626, on line 26.

Since Martha used up her $10,000 NOL

in 1997, she does not complete a column forthe first preceding tax year ended 12/31/98.The decrease in tax because of her NOL de-duction (line 28) is $2,845.

Martha files Form 1045 after filing her1999 return, but no later than January 2,2001. (Since December 31, 2000, falls on aSunday and January 1, 2001 is a holiday, thedue date is extended to January 2, 2001.)She mails it to the Internal Revenue ServiceCenter where she filed her 1999 return andattaches a copy of her 1999 return (includingthe applicable forms and schedules).

Step 1.

Sam's separate MTI ................................ $9,000Wanda's separate MTI ............................ + 3,000Total MTI ................................................. $12,000

Step 2.1997 Adjusted gross income ..................... $50,000Joint MTI ................................................. $15,000Itemized deductions:Sam's MTI total MTI

($9,000 $12,000) ................................. .75 Medical expenses[$6,000 ($50,000 7.5%)]............................................. $2,250

Sam's share of joint MTI ......................... $11,250

Step 3. State income tax ................. + 2,000Joint MTI ................................................. $15,000 Real estate tax .................... + 4,000Sam's share of joint MTI ......................... 11,250 Home mortgage interest ..... + 5,000Wanda's share of joint MTI ..................... $3,750 Total itemized deductions ............. $13,250Exemption .................................................. $2,650Step 4.Income tax ................................................. $6,351Wanda's share of joint MTI ..................... $3,750Self-employment tax .................................. $6,120Wanda's NOL deduction ......................... 2,000

Wanda's remaining share ....................... $1,750

Step 5.Sam's share of joint MTI ......................... $11,250

Wanda's remaining share ....................... + 1,750Joint MTI to be offset .............................. $13,000

Step 6.Sam's NOL deduction ............................. $18,000Joint MTI to be offset .............................. 13,000Sam's carryover to 1998 ......................... $5,000

Joint carryover to 1998 ........................... $5,000Sam's carryover ...................................... 5,000Wanda's carryover to 1998 ..................... $0

Page 9


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11/19

How To Figurean NOL CarryoverIf your NOL is more than your taxable incomefor the year to which you carry it (figured be-fore deducting the NOL), you may have anNOL carryover. You must make certain mod-ifications to your taxable income to determinehow much NOL you will use up in that yearand how much you can carry over to the nexttax year. Your carryover is the excess of yourNOL deduction over your modified taxableincome for the carryback or carryforwardyear. If your NOL deduction includes morethan one NOL, apply the NOLs against yourmodified taxable income in the same order inwhich you incurred them, starting with theearliest.

Modified taxable income. Your modifiedtaxable income is your taxable income figuredwith the following changes.

1) You cannot claim an NOL deduction forthe NOL whose carryover you are figur-ing or for any later NOL.

2) You cannot claim a deduction for capitallosses in excess of your capital gains.Also, you must increase your taxable in-come by the amount of any section 1202exclusion claimed on Schedule D (Form1040).

3) You cannot claim your exemptions foryourself, your spouse, or dependents.

4) You must figure any item affected by theamount of your adjusted gross incomeafter making the changes in (1) and (2),above, and certain other changes to youradjusted gross income that result from(1) and (2). This includes income anddeduction items used to figure adjustedgross income (for example, IRA de-ductions), as well as certain itemizeddeductions. To figure a charitable con-tribution deduction, do not include de-ductions for NOL carrybacks in thechange in (1) but do include deductionsfor NOL carryforwards from tax yearsbefore the NOL year.

Your taxable income as modified cannotbe less than zero.

Schedule B (Form 1045). You can useSchedule B (Form 1045) to figure your modi-fied taxable income for carryback years andyour carryover from each of those years. Donot use Schedule B for a carryforward year.If your 1999 return includes an NOL de-

duction from an NOL year before 1999 thatreduced your taxable income to zero (to lessthan zero, if an estate or trust), see NOLCarryover From 1999 to 2000, later.

Illustrated Schedule B(Form 1045)The following example illustrates how to fig-ure an NOL carryover from a carryback year.It includes a filled in Schedule B (Form 1045).

Example. Ida Brown runs a small clothingshop. In 1999, she has an NOL of $36,000that she chooses to carry back to 1997. Shehas no other carrybacks or carryovers to1997.

Ida's adjusted gross income in 1997 was$29,000, consisting of her salary of $30,000minus a $1,000 capital loss deduction. Sheis single and claimed only one personal ex-emption of $2,650. During that year, she gave$1,450 in charitable contributions. Her med-ical expenses were $2,725. She also de-ducted $1,650 in taxes and $1,125 in homemortgage interest.

Her deduction for charitable contributionswas not limited because her contributions,$1,450, were less than 50% of her adjustedgross income. The deduction for medical ex-penses was limited to expenses over 7.5%of adjusted gross income (.075 $29,000 =$2,175; $2,725 $2,175 = $550). The de-ductions for taxes and home mortgage inter-est were not subject to any limits. She wasable to claim $4,775 ($1,450 + $550 + $1,650+ $1,125) in itemized deductions for 1997.She had no other deductions in 1997. Hertaxable income for the year was $21,575.

Ida's $36,000 carryback will reduce her1997 taxable income to zero. She completesthe column labeled 2nd preceding tax yearended 12/31/97, of Schedule B (Form 1045)to figure how much of her NOL she uses upin 1997 and how much she can carry over to1998. See the illustrated Schedule B shownhere. Ida does not complete the column for

the first preceding tax year ended 12/31/98because the $10,700 carryover to 1998 iscompletely used up that year. (See the infor-mation for line 9, below.)

Line 1. Ida enters $36,000, her 1999 netoperating loss, on line 1.

Line 2. She enters $21,575, her 1997taxable income, on line 2.

Line 3. Ida enters on line 3 her net capitalloss deduction of $1,000.

Line 5. Although Ida's entry on line 3modifies her adjusted gross income, that doesnot affect any other items included in her ad-

justed gross income. Ida enters zero on line5.

Line 6. Since Ida had itemized deductionsand entered $1,000 on line 3, she completeslines 10 through 34 to figure her adjustmentto itemized deductions. On line 6, she entersthe total adjustment from line 34.

Line 10. Ida's adjusted gross income for1997 was $29,000.

Line 11. She adds lines 3 through 5 andenters $1,000 on line 11. (This is her netcapital loss deduction added back, whichmodifies her adjusted gross income.)

Line 12. Her modified adjusted gross in-come for 1997 is now $30,000.

Line 13. On her 1997 tax return, she de-ducted $550 as medical expenses.

Line 14. Her actual medical expenseswere $2,725.

Line 15. She multiplies her modified adjusted gross income, $30,000, by .075. Sheenters $2,250 on line 15.

Line 16. The difference between her ac-tual medical expenses and the amount she isallowed to deduct is $475.

Line 17. The difference between hermedical deduction and her modified medicaldeduction is $75. She enters this on line 17.

Line 18. She enters her modified adjustedgross income of $30,000 on line 18.

Line 19. She had no other carrybacks to1997 and enters zero on line 19.

Line 20. Her modified adjusted gross in-come remains $30,000.Line 21. Her actual contributions for 1997

were $1,450, which she enters on line 21.Line 22. She now refigures her charitable

contributions based on her modified adjustedgross income. Since she is well below the50% limit, she enters $1,450 on line 22.

Line 23. The difference is zero.Lines 24 through 33. Since Ida had no

casualty losses or deductions for miscella-neous items in 1997, she leaves these linesblank.

Line 34. She combines lines 17, 23, 28,and 33 and enters $75 on line 34. She carriesthis figure to line 6.

Line 7. Ida enters her personal exemption

of $2,650 for 1997.Line 8. After combining lines 2 through 7,Ida's modified taxable income is $25,300.

Line 9. Ida figures her carryover to 1998by subtracting her modified taxable income(line 8) from her NOL deduction (line 1). Sheenters the $10,700 carryover on line 9. Shealso enters this $10,700 as her NOL de-duction for 1998 on line 11 of page 1, Form1045, in the After carryback column underthe column labeled 1st preceding tax yearended 12/31/98. (For an illustrated exampleof page 1 of Form 1045, see Illustrated Form 1045 under How To Claim an NOL Deduction,earlier.)

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P r o o f a

s o f

O c t o b e r 2

2, 1 9 9 9

( s u b j e c t t

o c h a n g

e )

12-31-9 7

36,000

21,575

1,00 0

-0 -

752,650

25,300

10 ,700

29,0001,00 0

30,000

550

2,7252,250

475 75

12-31-9 82nd 1st

Page 3

Schedule B Net Operating Loss Carryover. See the instructions beginning on page 4.

precedingtax year ended



1

2

3

5

6

78

9

10

1112

14

1516

Form 1045 (1999)

Complete one column before going to thenext column. Start with the earliestcarryback year.

Net operating loss deduction. See

page 4 of the instructionsTaxable income before 1999 NOLcarryback. See page 5 of theinstructionsNet capital loss deduct ion. See page5 of the instructions

Adjustment to itemized deductions.See page 5 of the instructions

ExemptionsModified taxable income. Combinelines 2 through 7. If zero or less,enter -0-

Net operating loss carryover.Subtract line 8 from line 1. If zero orless, enter -0-. See page 5 of theinstructions

Adjustment to ItemizedDeductions (Individuals Only)

Adjusted gross income before 1999NOL carrybackAdd lines 3 through 5 aboveModified adjusted gross income. Addlines 10 and 11

Medical expenses from Sch. A (Form1040), line 1 (line 2 for 1989) (or aspreviously adjusted)Multiply line 12 by 7.5% (.075)Subtract line 15 from line 14. If zero

or less, enter -0-

Medical expenses from Sch. A (Form1040), line 4 (or as previously adjusted)

Subtract line 16 from line 13

13

17

Adjustments to adjusted grossincome. See page 5 of theinstructions

Complete lines 10 through 34 for thecarryback year(s) for which youitemized deductions ONLY if line 3 or

line 4 above is more than zero.

Section 1202 exclusion. See page 5of the instructions

4

Form 1045 (1999)

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P r o o f a

s o f

O c t o b e r 2 2

, 1 9 9 9

( s u b j e c t t o

c h a n g e

)

12-31-9 7

30,000

-0 -

30,000

1,450

1,450

-0 -

75

2nd

$108,450 for 1993.

34

Page 4

Schedule B Net Operating Loss Carryover (Continued)

19

20

22

21

23

Form 1045 (1999)

Add lines 18 and 19

Refigured charitable contributions. Seepage 5 of the instructions

Charitable contributions from Sch. A(Form 1040), line 18 (line 17 for1989-90, line 16 for 1991-93) (or aspreviously adjusted)


Casualty and theft losses from Form4684, line 16 (or as previously adjusted)Multiply line 18 by 10% (.10)Subtract line 26 from line 25. If zeroor less, enter -0-

Casualty and t heft losses from Form

4684, line 18 (or as previouslyadjusted)


Miscellaneous itemized deductionsfrom Sch. A (Form 1040), line 23 (line22 for 1989-90, line 21 for 1991-93)(or as previously adjusted)Multiply line 18 by 2% (.02)Subtract line 31 from line 30. If zeroor less, enter -0-

Miscellaneous itemized deductionsfrom Sch. A (Form 1040), line 26 (line24 for 1989 and 1991-93, line 25 for1990) (or as previously adjusted)


25

2627

24

28

30

3132

29

33




Complete one column before going to thenext column. Start with the earliestcarryback year.

Enter as a positive number any NOLcarryback from a year before 1999that was deducted in figuring line 10on page 3

Modified adjusted gross income fromline 12 on page 3

18

$111,800 for 1994. $114,700 for 1995. $117,950 for 1996. $121,200 for 1997.

Otherwise, combine lines 17, 23, 28,and 33; enter the result here and online 6 (page 3)

Complete the worksheet on page 6 ofthe instructions if line 18 is more thanthe applicable amount shown below(more than one-half that amount ifmarried filing separately).

$100,000 for 1991. $105,250 for 1992.

$124,500 for 1998.

Form 1045 (1999)

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NOL Carryover From1999 to 2000If you had an NOL deduction that reducedyour taxable income on your 1999 return tozero (to less than zero, if an estate or trust),complete Table 1, Worksheet for NOL Carry- over From 1999 to 2000. It will help you figureyour NOL to carry to 2000. Keep the work-sheet for your records.

Worksheet InstructionsAt the top of the worksheet, enter the NOLyear for which you are figuring the carryover.

CAUTION!

More than one NOL. If your 1999 NOL deduction includes amounts for more than one loss year, complete

this worksheet only for one loss year. To determine which year, start with your earliest NOL and subtract each NOL separately from your taxable income figured without the NOLdeduction. Complete this worksheet for the earliest NOL that reduces your taxable income below zero. Your earlier NOLs will be completely used up in 1999. Your NOL carryover to 2000 is the total of the amount on line 8 of the worksheet and all later NOLamounts.

Example. Your taxable income for 1999is $4,000 without your $9,000 NOL deduction.Your NOL deduction includes $2,000 for 1997and $7,000 for 1998. Subtract your 1997 NOLof $2,000 from $4,000. This gives you taxableincome of $2,000. Your 1997 NOL is nowcompletely used up. Subtract your $7,0001998 NOL from $2,000. This gives you taxa-ble income of ($5,000). You now completethe worksheet for your 1998 NOL. Your NOLcarryover to 2000 is the unused part of your1998 NOL from line 8 of the worksheet.

Line 2. Treat your NOL deduction for theNOL year entered at the top of the worksheetand later years as a positive amount. Add it

to your negative taxable income. Enter theresult on line 2.

Line 4. You must refigure the following in-come and deductions based on adjustedgross income.

1) The special allowance for passive activ-ity losses from rental real estate activ-ities.

2) Taxable social security and tier 1 railroadretirement benefits.

3) IRA deduction.

4) Excludable savings bond interest.

5) Excludable employer-provided adoptionbenefits.

6) Student loan interest deduction.

If none of these items apply to you, enterzero on line 4. Otherwise, increase your ad-

justed gross income by the total of lines 3aand 3b and your NOL deduction for the NOLyear entered at the top of the worksheet andlater years. Using this increased adjustedgross income, refigure the items that apply,in the order listed above. Your adjustment foreach item is the difference between the re-

figured amount and the amount included onyour return. Add the adjustments for previousitems to your adjusted gross income beforerefiguring the next item. Keep a record of yourcomputations.

Enter your total adjustments for the aboveitems on line 4.

Line 5. Enter zero if you claimed the stand-ard deduction. Otherwise, use lines 9 through40 of the worksheet to figure the amount toenter on this line. Complete only thosesections that apply to you.

Estates and trusts. Enter zero on line 5if you did not claim any miscellaneous de-ductions on line 15b (Form 1041) or a casu-alty or theft loss. Otherwise, refigure these

deductions by substituting modified adjustedgross income (see below) for adjusted grossincome. Subtract the recomputed deductions

from those claimed on the return. Enter theresult on line 5.

Modified adjusted gross income. Torefigure miscellaneous itemized deductionsof an estate or trust (Form 1041, line 15b),modified adjusted gross income is the totalof the following amounts.

1) The adjusted gross income on the re-turn.

2) The amounts from lines 3a and 3b of theworksheet.

3) The exemption amount from Form 1041,line 20.

4) The NOL deduction for the NOL yearentered at the top of the worksheet andfor later years.

To refigure the casualty and theft lossdeduction of an estate or trust, modified ad-

justed gross income is the total of the follow-ing amounts.

1) The adjusted gross income amount youused to figure the deduction claimed onthe return.

2) The amounts from lines 3a and 3b of theworksheet.

3) The NOL deduction for the NOL yearentered at the top of the worksheet andfor later years.

Line 9. Treat your NOL deduction for theNOL year entered at the top of the worksheetand for later years as a positive amount. Addit to your adjusted gross income. Enter theresult on line 9.

Line 18. If you had a contributions carryoverfrom 1998 to 1999 and your NOL deductionincludes an amount from an NOL year before1998, you may have to reduce your contribu-tions carryover. This reduction is any adjust-ment you made to your 1998 charitable con-tributions deduction when figuring your NOL

carryover to 1999. Use the reduced contribu-tions carryover to figure the amount to enteron line 18.

Page 14


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Table 1.

USE YOUR 1999 FORM 1040 (OR FORM 1041) TO COMPLETE THIS WORKSHEET:

For Use by Individuals, Estates, and Trusts (Keep for your records.)See the instructions under NOL Carryover From 1999 to 2000.

1. Enter as a positive number your NOL deduction for the NOL year entered above from line 21 (Form1040) or line 15a (Form 1041)

NOL YEAR:

2. Enter your taxable income without the NOL deduct ion for the NOL year entered above or later years.(See instructions.)

3a. Enter as a positive number any net capital loss deduction

4. Enter any adjustments to your adjusted gross income (see instructions)

6. Enter your deduction for exemptions from line 38 (Form 1040) or line 20 (Form 1041)

7. Modified taxable income. Combine lines 2 through 6. Enter the result (but not less than zero)

8. NOL carryover to 2000. Subtract line 7 from line 1. Enter the result (but not less than zero) hereand on the other income line of Form 1040 (or the line on Form 1041 for deductions NOT subjectto the 2% floor) in 2000

9. Enter your adjusted gross income without the NOL deduction for the NOL year entered above orlater years. (See instructions.)

10. Combine lines 3a, 3b, and 4 above11. Modified adjusted gross income. Combine lines 9 and 10 above

ADJUSTMENTS TO ITEMIZED DEDUCTIONS (INDIVIDUALS ONLY):

ADJUSTMENT TO MEDICAL EXPENSES:

5. Enter any adjustments to your itemized deductions from line 30 or line 40 (see instructions)

12. Enter your medical expenses from Schedule A (Form 1040), line 4

14. Multiply line 11 above by 7.5% (.075)

13. Enter your medical expenses from Schedule A (Form 1040), line 1

15. Subtract line 14 from line 13. Enter the result (but not less than zero)


Refigure your charitable contributions deduction using line 11 above as your adjusted gross income.(See instruct ions)

Enter your charitable contributions deduction from Schedule A (Form 1040), line 18


ADJUSTMENT TO CHARITABLE CONTRIBUTIONS:

16.

17.

18.

19.

ADJUSTMENT TO CASUALTY AND THEFT LOSSES:Enter your casualty and theft losses from Form 4684, line 18

Multiply line 11 above by 10% (.10)

20.

21.

22.

Enter your casualty and theft losses from Form 4684, line 16

Subtract line 22 from line 21. Enter the result (but not less than zero)23.

24. Subtract line 23 from line 20

ADJUSTMENT TO MISCELLANEOUS DEDUCTIONS:Enter your miscellaneous deductions from Schedule A (Form 1040), line 26

Multiply line 11 above by 2% (.02)

25.

26.

27.

Enter your miscellaneous deductions from Schedule A (Form 1040), line 23

Subtract line 27 from line 26. Enter the result (but not less than zero)28.29. Subtract line 28 from line 25

TENTATIVE TOTAL ADJUSTMENT:Combine lines 16, 19, 24, and 29, and enter the result here. If line 11 above is $126,600 or less($63,300 or less if married filing separately), also enter the result on line 5 above and stop here.Otherwise, go to line 31

30.

Worksheet for NOL Carryover From 1999 to 2000 (For an NOL Year Before 1999)*

Enter as a positive number any gain excluded on the sale or exchange of qualified small business stock

*Note: If you choose to waive the carryback period, and instead you choose to only carry your 1999 NOL forward, use Schedule A, Form 1045 to compute your 1999 NOL that will be carried over to 2000. Report your 1999 NOL from line 27, Schedule A, Form 1045 on the other income line of Form 1040 or the line on Form 1041 for deductions NOT subject to the 2% floor in 2000.

b.

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How To Get MoreInformationYou can order free publications and forms,ask tax questions, and get more informationfrom the IRS in several ways. By selecting themethod that is best for you, you will havequick and easy access to tax help.

Free tax services. To find out what servicesare available, get Publication 910, Guide to Free Tax Services. It contains a list of free taxpublications and an index of tax topics. It alsodescribes other free tax information services,including tax education and assistance pro-grams and a list of TeleTax topics.

Personal computer. With your per-sonal computer and modem, you canaccess the IRS on the Internet at

www.irs.gov . While visiting our web site, youcan select:

Frequently Asked Tax Questions (locatedunder Taxpayer Help & Ed) to find an-swers to questions you may have.

Forms & Pubs to download forms andpublications or search for forms and

publications by topic or keyword. Fill-in Forms (located under Forms &

Pubs) to enter information while the formis displayed and then print the completedform.

Tax Info For You to view Internal Reve-nue Bulletins published in the last fewyears.

Tax Regs in English to search regulationsand the Internal Revenue Code (underUnited States Code (USC)).

Digital Dispatch and IRS Local News Net (both located under Tax Info For Busi- ness) to receive our electronic newslet-ters on hot tax issues and news.

Small Business Corner (located underTax Info For Business) to get informationon starting and operating a small busi-ness.

You can also reach us with your computerusing File Transfer Protocol at ftp.irs.gov.

TaxFax Service. Using the phoneattached to your fax machine, you canreceive forms and instructions by

calling 7033689694. Follow the directionsfrom the prompts. When you order forms,enter the catalog number for the form youneed. The items you request will be faxed toyou.

Phone. Many services are availableby phone.

Ordering forms, instructions, and publications. Call 18008293676 to ordercurrent and prior year forms, instructions,and publications.

Asking tax questions. Call the IRS withyour tax questions at 18008291040.

TTY/TDD equipment. If you have accessto TTY/TDD equipment, call 18008294059 to ask tax questions or to orderforms and publications.

TeleTax topics. Call 18008294477 tolisten to pre-recorded messages coveringvarious tax topics.

Evaluating the quality of our telephone services. To ensure that IRS representativesgive accurate, courteous, and professional

answers, we evaluate the quality of our tele-phone services in several ways.

A second IRS representative sometimesmonitors live telephone calls. That persononly evaluates the IRS assistor and doesnot keep a record of any taxpayer's nameor tax identification number.

We sometimes record telephone calls toevaluate IRS assistors objectively. Wehold these recordings no longer than oneweek and use them only to measure thequality of assistance.

We value our customers' opinions.Throughout this year, we will be survey-ing our customers for their opinions onour service.

Walk-in. You can walk in to manypost offices, libraries, and IRS officesto pick up certain forms, instructions,

and publications. Also, some libraries and IRSoffices have:

An extensive collection of products avail-able to print from a CD-ROM or photo-copy from reproducible proofs.

The Internal Revenue Code, regulations,Internal Revenue Bulletins, and Cumula-tive Bulletins available for research pur-poses.

Mail. You can send your order forforms, instructions, and publicationsto the Distribution Center nearest to

you and receive a response within 10 work-days after your request is received. Find theaddress that applies to your part of thecountry.

Western part of U.S.:Western Area Distribution CenterRancho Cordova, CA 957430001

Central part of U.S.:Central Area Distribution CenterP.O. Box 8903Bloomington, IL 617028903

Eastern part of U.S. and foreign ad-dresses:Eastern Area Distribution CenterP.O. Box 85074Richmond, VA 232615074

CD-ROM. You can order IRS Publi-cation 1796, Federal Tax Products on CD-ROM, and obtain:

Current tax forms, instructions, and pub-lications.

Prior-year tax forms, instructions, andpublications.

Popular tax forms which may be filled inelectronically, printed out for submission,and saved for recordkeeping.

Internal Revenue Bulletins.

The CD-ROM can be purchased fromNational Technical Information Service (NTIS)by calling 18772336767 or on the Internetat www.irs.gov/cdorders. The first releaseis available in mid-December and the finalrelease is available in late January.

IRS Publication 3207, Small Business Resource Guide, is an interactive CD-ROMthat contains information important to smallbusinesses. It is available in mid-February.You can get one free copy by calling18008293676.

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Index

AAssistance (See More information )

C Carryback period ......................... 7 Carryforward period ..................... 7

Carryover from 1999 to 2000:Estates and trusts ................ 14

Worksheet instructions ......... 14Claiming an NOL deduction ........ 7

DDeducting a carryback ................ 7Deducting a carryforward ............ 8

FFiguring an NOL carryover ........ 11Figuring an NOL:

Capital losses ......................... 2 Exemptions ............................. 2 NOL deduction ....................... 2 Nonbusiness deductions ........ 2 Nonbusiness income .............. 2

Schedule A (Form 1045) ........ 2Filing status, change in ............... 8Forms and schedules:

Form 1040X ........................... 8 Form 1045 .............................. 7

Schedule A (Form 1045) ........ 2Schedule B (Form 1045) ...... 11Free tax services ....................... 17

HHelp (See More information )

IIllustrated forms and

schedules:

Form 1045 .............................. 9Schedule A (Form 1045) ........ 3Schedule B (Form 1045) ...... 11

MMarital status, change in ............. 8Modified taxable income ........... 11

More information ....................... 17

NNOL more than taxable income .. 7

PPublications (See More information )

R Refiguring tax .............................. 8

SSchedule A (Form 1045) ............. 2Schedule B (Form 1045) ........... 11Steps in figuring NOL .................. 2

T

Tax help (See More information ) TTY/TDD information ................ 17

WWaiving the carryback period ...... 7When to use an NOL .................. 7

Worksheet:Carryover from 1999 to 2000 14

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Tax Publications for Individual Taxpayers

General Guides

Your Rights as a TaxpayerYour Federal Income Tax (ForIndividuals)Farmer s Tax GuideTax Guide for Small BusinessTax Calendars for 2000Highlights of 1999 Tax Changes

Guide to Free Tax Services

Specialized Publications

Armed Forces Tax GuideFuel Tax Credits and RefundsTravel, Entertainment, Gift, and CarExpensesExemptions, Standard Deduction,and Filing InformationMedical and Dental ExpensesChild and Dependent Care ExpensesDivorced or Separated IndividualsTax Withholding and Estimated TaxTax Benefits for Work-RelatedEducationForeign Tax Credit for IndividualsU.S. Government Civilian EmployeesStationed AbroadSocial Security and OtherInformation for Members of theClergy and Religious WorkersU.S. Tax Guide for AliensScholarships and FellowshipsMoving ExpensesSelling Your HomeCredit for the Elderly or the DisabledTaxable and Nontaxable IncomeCharitable ContributionsResidential Rental Property

Commonly Used Tax Forms

Miscellaneous Deductions

Tax Information for First-TimeHomeownersReporting Tip IncomeSelf-Employment TaxDepreciating Property Placed inService Before 1987Installment SalesPartnershipsSales and Other Dispositions ofAssetsCasualties, Disasters, and Thefts(Business and Nonbusiness)Investment Income and ExpensesBasis of AssetsRecordkeeping for IndividualsOlder Americans Tax GuideCommunity PropertyExamination of Returns, AppealRights, and Claims for RefundSurvivors, Executors, andAdministratorsDetermining the Value of DonatedPropertyMutual Fund DistributionsTax Guide for Individuals WithIncome From U.S. Possessions

Pension and Annuity IncomeCasualty, Disaster, and Theft LossWorkbook (Personal-Use Property)Business Use of Your Home(Including Use by Day-CareProviders)Individual Retirement Arrangements(IRAs) (Including Roth IRAs andEducation IRAs)Tax Highlights for U.S. Citizens andResidents Going AbroadUnderstanding the Collection ProcessEarned Income Credit (EIC)Tax Guide to U.S. Civil ServiceRetirement Benefits

Tax Highlights for Persons withDisabilitiesBankruptcy Tax GuideDirect SellersSocial Security and EquivalentRailroad Retirement BenefitsHow Do I Adjust My Tax Withholding?Passive Activity and At-Risk RulesHousehold Employer s Tax GuideTax Rules for Children andDependentsHome Mortgage Interest DeductionHow To Depreciate PropertyPractice Before the IRS and Powerof AttorneyIntroduction to Estate and Gift TaxesIRS Will Figure Your Tax

Per Diem RatesReporting Cash Payments of Over$10,000The Taxpayer Advocate Service ofthe IRS

Derechos del ContribuyenteC mo Preparar la Declaraci n deImpuesto Federal

Cr dito por Ingreso del TrabajoEnglish-Spanish Glossary of Wordsand Phrases Used in PublicationsIssued by the Internal RevenueService

U.S. Tax Treaties

Spanish Language Publications

Tax Highlights for CommercialFishermen

910

595553509334225

171

3378463

501

502503504505508

514516

517

519520521523524525526527529

530

531533534

537

544

547

550551552554

541

555556

559

561

564570

575584

587

590

593

594596721

901907

908

915

919925926929

946

911

936

950

1542

967

1544

1546

596SP

1SP

850

579SP

Comprendiendo el Proceso de Cobro594SP

947

Tax Benefits for Adoption968

Informe de Pagos en Efectivo enExceso de $10,000 (Recibidos enuna Ocupaci n o Negocio)

1544SP

See How To Get More Information for a variety of ways to get forms, including by computer,

fax, phone, and mail. For fax orders only, use the catalog numbers when ordering.

U.S. Individual Income Tax ReturnItemized Deductions & Interest andOrdinary Dividends

Profit or Loss From BusinessNet Profit From Business

Capital Gains and Losses

Supplemental Income and LossEarned Income Credit

Profit or Loss From Farming

Credit for the Elderly or the Disabled

Income Tax Return for Single andJoint Filers With No Dependents

Self-Employment TaxU.S. Individual Income Tax ReturnInterest and Ordinary Dividends forForm 1040A FilersChild and Dependent CareExpenses for Form 1040A FilersCredit for the Elderly or theDisabled for Form 1040A Filers

Estimated Tax for IndividualsAmended U.S. Individual Income Tax Return

Unreimbursed Employee BusinessExpenses

Underpayment of Estimated Tax byIndividuals, Estates, and Trusts

Power of Attorney and Declarationof Representative

Child and Dependent Care Expenses

Moving ExpensesDepreciation and AmortizationApplication for Automatic Extension of TimeTo File U.S. Individual Income Tax ReturnInvestment Interest Expense DeductionAdditional Taxes Attributable to IRAs, OtherQualified Retirement Plans, Annuities,Modified Endowment Contracts, and MSAsAlternative Minimum Tax IndividualsNoncash Charitable Contributions

Change of AddressExpenses for Business Use of Your Home

Nondeductible IRAsPassive Activity Loss Limitations

1040Sch A & B

Sch CSch C-EZSch D

Sch ESch EICSch FSch H Household Employment Taxes

Sch R

Sch SE

1040EZ

1040ASch 1

Sch 2

Sch 3

1040-ES1040X

2106 Employee Business Expenses2106-EZ

2210

24412848

390345624868

49525329

6251828385828606

88228829

Form Number and TitleCatalogNumber

Sch J Farm Income Averaging

Additional Child Tax Credit8812

Education Credits8863

CatalogNumber

1170020604

11744

1186211980

124901290613141

1317713329

1360062299637046396610644120811323225379

11320Form Number and Title

11330

113341437411338

113441333911346121872551311359

113581132712075

10749

12064

11329

1134011360

See How To Get More Information for a variety of ways to get publications,including by computer, phone, and mail.

970 Tax Benefits for Higher Education971 Innocent Spouse Relief

Sch D-1 Continuation Sheet for Schedule D 10424

972 Child Tax Credit

us internal revenue service: p536--1999

Documents