Carryover NOL being used up even though the tax year was a loss that would have no taxes due.

[fbgoldwing]

I'm hoping someone can show me the error of my ways.

I had occasion to revisit my 2011 taxes and work on the Net Operating Loss from my business. So I added up all my income and took away all my losses and came up with negative income for the year. Then I figured the taxes using a carry forward NOL that I had of over $100,000.

The result was that even though my taxes for the year were zero because of a negative income the calculations for the Carryover NOL required it to deduct over $1,400 from the existing NOL.

My understanding is that NOLs are to be applied to a positive income thereby reducing it and reducing the Carryover NOL due to that reduction of taxes. However this doesn't seem to be the case in this situation, it's reducing the existing NOL even though the tax year shows a loss. This particular year it was reduced by $1478. This has happened on several years. At this rate I will use up the NOL without actually using it.

Should not require a reduction of the Carryover NOL in my thinking. Am I wrong here?

INCOME 1040

1. Interest:         13
2. IRA:         15720
3.                ________

                            15733

DEDUCTIONS 1040

• Sch D Loss:                -  3000
• Sch E Loss:                 -  2522
• STD DED:                   -11600
• EXEMPTIONS:           -  7400
• DED SE TAX:               -   133
•                                         —————

                                              -  24655

INCOME                               15733

DEDUCTIONS                    -24655

                                              ______

                                                -8922

TAX DUE                                   0

[tagteam]

Just a threshold question because you mentioned the 2011 tax year and then immediately mentioned a carryover, so are you aware for 2011 you needed to either carry back the NOL for the two previous tax years before carrying it forward or file a statement waiving the two-year carryback period?

That is rather important because it means if you failed to waive the carryback period, you would have been required to carryback your 2011 NOL to 2009 and then to 2010 before carrying it forward to future years.

[AmeliesUncle]

---

@fbgoldwing wrote:

My understanding is that NOLs are to be applied to a positive income

INCOME 1040

• Sch D Loss:                -  3000
• EXEMPTIONS:           -  7400

---

The calculation involves a MODIFIED "taxable income".

Publication 536:

You must make certain modifications to your taxable income to determine how much NOL you will use up in the year and how much you can carry to the next tax year. The amount you can carry to the next tax year generally is the excess of the amount of your NOL carried to the tax year over your modified taxable income for the carryback or carryforward year. ...

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 AGI after making the changes in (1), (2), and (3) above, and certain other changes to your AGI that result from (1), (2), and (3). This includes income and deduction items used to figure AGI (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.

https://www.irs.gov/publications/p536#en_US_2019_publink[phone number removed]

[TenOC]

so are you aware for 2011 you needed to either carry back the NOL for the two previous tax years before carrying it forward or file a statement waiving the two-year carryback period?

For 2019 do you need to file a waiver before you can carry forward???

[tagteam]

---

@TenOC wrote:

For 2019 do you need to file a waiver before you can carry forward???

---

No, you do not. Tax reform (the TCJA) eliminated NOL carrybacks; you can only carry forward.

[fbgoldwing]

Yes, I am aware and the two-year carryback period was waived.

My question is strictly concerning the calculations for the usage of an existing NOL. It appears that the IRS worksheets for it are reducing an existing NOL balance even though there would be no taxes due in a given year if there was no NOL.

In other words,

If I did not have an existing NOL my taxes would have been 0,

But, since I did have a Carryover NOL, my taxes were still 0 but, $1478 was deducted from the Carryover NOL.

This is like filling up your gas tank on Monday, parking your car in the garage for 2 weeks while you go on a cruise and when you finally come back to drive your car to work, your tank is only half full.

To me, this makes no sense, so my quest is to understand.

[tagteam]

---

@fbgoldwing wrote:

To me, this makes no sense, so my quest is to understand.

---

Did you read the post (above) by @AmeliesUncle? 

[fbgoldwing]

I did, it answers the "How" but not the "Why".

If I did not have an existing NOL my taxes would have been 0, for a Taxable income of   ( $5342.)

But, since I did have a Carryover NOL, my taxes were still 0 but, $1478 MODIFIED "taxable income", was deducted from the Carryover NOL.

This is like filling up your gas tank on Monday, parking your car in the garage for 2 weeks while you go on a cruise and when you finally come back to drive your car to work, your tank is only half full.

[tagteam]

---

@fbgoldwing wrote:

I did, it answers the "How" but not the "Why".

---

Now I am confused. If you want to know the policy behind the calculation, you need to ask Congress.