Definition

A net operating loss occurs when a taxpayer's allowable tax deductions are greater than the taxable income, resulting in negative taxable income. More simply put, an NOL occurs when the taxpayer has more expenses (or deductions) than revenue (or income). Most commonly NOLs are generated from trade or business income, such as that from Schedule C, Schedule E and Schedule F.

See Publication 536 for more information. Also refer to Schedule A in the Form 1045 Instructions.

For a farmer or insurance company, a NOL can be carried back 2 years. All other taxpayers can only carry forward NOLs.

• 1045 screen - used for Form 1045 Application for Tentative Refund, pages 1 and 2, and Form 1045, Schedule B (pages 4 and 5). This page requests a refund of taxes paid in prior years to which you are now carrying back a current-year NOL.

• NOL screen - used for Form 1040, Schedule A (page 3 of Form 1045). Once you begin data entry here, the software generates all pages of Form 1045.

  • Schedule A – NOL - used for page 3 of Form 1045.

  • Schedule A calculates and displays your current-year return NOL, based on data already entered in the return. Data entry fields are all overrides.

  • Farmers and insurance companies can check the box Election to carry forward ONLY to produce Schedule A by itself.

• LOSS screen.

  • Shows what NOLs were generated and used in past years.

    Important  Never enter current-year NOL data on a LOSS screen.

  • Does not display the current-year NOL to be carried forward. That appears on the worksheets below.

NOL worksheets:

• Wks CARRY displays any current and prior-year NOL available to be carried forward. The carryforward will appear on next year’s LOSS screen when the return is updated.

• Wks NOL is what next year’s LOSS screen will look like when the return is updated, including the carryforward.

• Wks NOLCO displays any prior-year NOL to be carried forward. The carryforward will appear on next year’s LOSS screen when the return is updated.

Prior-year NOL Entry

In data entry in a 1040 return, go to the LOSS screen. Enter the amount for each year in the column Available Carryforward and then enter amounts in the Used Prior to 2024 column.

The LOSS screen fields are direct entry - you must complete each field as needed.

Entire NOL Shown

When you have a prior year NOL carryover, the entire amount will be shown on Schedule 1, line 8, even if the gain in the current year is less than the NOL being carried forward. The full amount* of NOL carryover available will show per IRS guidelines.

Publication 536:

"If you carry forward your NOL to a tax year after the NOL year, list your NOL deduction as a negative figure on the “Other income” line of Schedule 1 (Form 1040) or Form 1040-NR (line 8 for 2022)."

1040 Instructions:

"Enter on line 8a any NOL deduction from an earlier year. Enter the amount in the preprinted parentheses (as a negative number). The amount of your deduction will be subtracted from the other amounts of income listed on lines 8b through 8z."

If the Net Operating Loss can be applied to the current year income, it will be applied. Any remaining NOL carryover will be calculated and shown on Wks NOL, Wks NOLCO, and Wks CARRY.

• Wks NOLCO calculates the modified taxable income and the amount to carry to next year.

• Wks NOL in View/Print Mode shows the total NOL for each year, the amount used in the current year and the remaining NOL.

*If there is an NOL carryforward that is disallowed on Wks NOL due to the 80% of taxable income limitation, the amount printed on Schedule 1, line 8 will be different than the total of all carryforwards entered on the LOSS screen. If all carryforwards are from post-2017, and are disallowed, nothing will be shown on Schedule 1, line 8, however the required statements and worksheets will still be generated. This information is shown on Wks NOL. For more information, see Publication 536.

Current-year NOL

If the income minus either the standard or itemized deduction amount on Form 1040 is negative, there may or may not be an NOL. You can review the calculations on Form 1045 Schedule A - NOL. On Form 1045 page 3:

• line 1 flows from Form 1040, line 11 minus line 12

• an NOL appears as a negative number on line 24

Form 1045 Schedule A - NOL if either:

• There is an NOL, which appears on line 24 as a negative number and appears on the Wks NOL in the Remaining Carryover column.

• You have selected the PRNT screen option Print Form 1045 page 3 (Schedule A - NOL) and the AGI minus standard or itemized deduction is negative.

NOL Carryforward

For NOLs acquired after December 31, 2017, If the taxpayer/entity is not a farmer or insurance company, it cannot be carried back at all, and thus will be carried forward only.

A current-year NOL always appears in View/Print mode on:

• Form 1045, page 3

• Worksheet Wks NOL

Review Wks Carry and Wks NOLCO, if present, for more information on the NOL calculations and carryforward amounts.

NOL Carryback Entry

Enter only NOL carryback amounts on screen 3. Use this field for carryback amounts from future years, to amend the current-year amount, or to adjust carryback amounts calculated from the LOSS screen.

Carryforward amounts should be entered on the LOSSscreen.