Net Operating Loss carryover

[asender]

I have a net operating loss carryover from 2018 but am now retired and not operating a business. Can I still use the NOL carryover to reduce my taxes?

[ColeenD3]

An NOL can only be used against specific types of income. It is a complicated topic that is beyond TurboTax's scope but here is a general idea of how to calculate the carryover going forward.

How To Figure an NOL Carryover

If your NOL is more than your taxable income for the year to which you carry it (figured before deducting the NOL), you may have an NOL carryover. You must make certain modifications to your taxable income to determine how much NOL you will use up in that year and how much you can carry over to the next tax year. Your carryover is the excess of your NOL deduction over your modified taxable income for the carryback or carryforward year. If your NOL deduction includes more than one NOL, apply the NOLs against your modified taxable income in the same order in which you incurred them, starting with the earliest.

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

Your taxable income as modified cannot be less than zero.

NOL

[asender]

Thanks so much for that quick and thorough reply on a pretty complicated subject.  I know that I have a NOL carryover from 2018 that is a healthy figure.  My TurboTax files from 2018 and 2019 laid out my NOL in '18 and the carryover in '19 pretty clearly. 

So my question becomes:  Can I simply use that carryover to reduce my 2020 income (subject to the various contingencies you describe in your response) even if I have no net operating business gains or losses in 2020?  

[ColeenD3]

Figuring the amount of an NOL is not as simple as deducting your losses from your annual income.

First, you must determine your annual losses from your business (or businesses). If you’re a sole proprietor who files IRS Schedule C, the expenses listed on the form will exceed your reported business income. If your business is a partnership, LLC, or S corporation shareholder, your share of the business’s losses will pass through the entity to your personal tax return. Your business loss is added to all your other deductions and then subtracted from all your income for the year. The result is your adjusted gross income (AGI).

Business NOL

[AmeliesUncle]

As was noted above, TurboTax does NOT calculate NOLs, so it definitely does not 'lay it out' for you.  You need to manually calculate the NOL or go to a tax professional.

By default, the 2018 NOL would be carried back to 2013.  If you want to "waive the carryback" to carry it to 2019, you need to file the election to do so.

In answer to your question, YES, a NOL that is being carried forward or carry back will offset any income on your tax return, even non-business income.

[asender]

Hello again and thank you for responding.  I have consulted with my CPA and we are both puzzled by the way TurboTax calculated NOL for me in 2018.  Frankly, we are wondering whether there was an error on Turbotax's part.

I had a significant loss on a business venture than ended in 2018. The loss shown on a K-1 went on Schedule 1, Line 22 and was then reflected on Line 6 of the Form 1040. 

In Section D of the Turbotax-created K-1 (entitled Qualified Business Income Deduction Information), line H 1 reflects allowable qualified business income of -$xxxxx.  Turbotax also created  a Qualified Business Income Component Worksheet and a QBI Deduction Simplified Worsheet reflecting in Line 16 of the Simplified Worksheet a Total QBI Loss carryforward of -$xx,xxx.  That QBI Loss shows up on my 2019 Turbotax return and on my drsft 220 Turbotax return.  

The CPA and I are trying to understand how I could have this QBI carryover if I took the entire loss on my Schedule 1 and Form 1040 in 2018? Are we missing a tax law aberration or did the Turbotax program create a QBI carryover it should not have?  Thank you so much addressing this.

[tamara5]

I can't figure out how to ask a question on a new topic, so am using this topic to ask my somewhat related question. In my California tax return, Form 3085Q shows up and is asking for an SIC code for a disaster. I have not experience a disaster. I do have losses I am carrying over but they are due to business operations, not to a disaster. How to a resolve this so California does not think I experienced a disaster?

[JotikaT2]

You can review the amount pulled into your state return by going through the state interview section again.  

1. Select State in the black panel on the left hand side of your screen when logged into TurboTax.
2. This will take you to a screen titled Let's get your state taxes done right.  Click continue on this screen.
3. You will see the following screen titled Status of your state returns.  Select Edit to the right of California to review your entries.

Proceed through the screens until you see the screen titled Here's the income that California handles differently.  

Scroll down to Business and select Limitation on Business Losses.

You will make your Excess Business Loss Carryover from 2019 at the bottom of the screen titled Information Related to Business Losses.

[asender]

Hi.  would it be possible for someone to review the post from yesterday (shown below) that began this string?  It doesn't have to do with state taxation but appears to be some sort of anomaly within Turbotax.  Thank you?

I have consulted with my CPA and we are both puzzled by the way TurboTax calculated NOL for me in 2018.  Frankly, we are wondering whether there was an error on Turbotax's part.  It is impacting my 2020 filing and planning going forward, or possibly via carryback.

I had a significant loss on a business venture than ended in 2018. The loss (From a K-1) went on Schedule 1, Line 22 and was then reflected on Line 6 of the Form 1040. 

In Section D of the 2018 Turbotax-created K-1 (entitled Qualified Business Income Deduction Information), line H 1 reflects allowable qualified business income of -$xxxxx.  Turbotax also created  a Qualified Business Income Component Worksheet and a QBI Deduction Simplified Worsheet reflecting in Line 16 of the Simplified Worksheet a Total QBI Loss carryforward of -$xx,xxx. 

That QBI Loss shows up on my 2019 Turbotax return and on my draft 220 Turbotax return.  

The CPA and I are trying to understand how I could have this QBI carryover if I took the entire loss on my Schedule 1 and Form 1040 in 2018? Are we missing a tax law aberration or did the Turbotax program create a QBI carryover it should not have?  Thank you so much addressing this.

[AmeliesUncle]

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@asender wrote:

I have consulted with my CPA and we are both puzzled by the way TurboTax calculated NOL for me in 2018.  Frankly, we are wondering whether there was an error on Turbotax's part.  It is impacting my 2020 filing and planning going forward, or possibly via carryback.

I had a significant loss on a business venture than ended in 2018. The loss (From a K-1) went on Schedule 1, Line 22 and was then reflected on Line 6 of the Form 1040. 

In Section D of the 2018 Turbotax-created K-1 (entitled Qualified Business Income Deduction Information), line H 1 reflects allowable qualified business income of -$xxxxx.  Turbotax also created  a Qualified Business Income Component Worksheet and a QBI Deduction Simplified Worsheet reflecting in Line 16 of the Simplified Worksheet a Total QBI Loss carryforward of -$xx,xxx. 

That QBI Loss shows up on my 2019 Turbotax return and on my draft 220 Turbotax return.  

The CPA and I are trying to understand how I could have this QBI carryover if I took the entire loss on my Schedule 1 and Form 1040 in 2018? Are we missing a tax law aberration or did the Turbotax program create a QBI carryover it should not have?  Thank you so much addressing this.

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You reported a "business loss" from the K-1.  Unless that loss is greater than ALL of the other income on your tax return, you do NOT  have an NOL.  So don't confuse things by saying NOL.

QBI is something completely different, and yes, that will carry forward even if you fully used the business loss.  If your tax professional does not know that, he needs to do some more continuing education on QBI.   

Although I'm not 100% certain if the QBI loss still carries forward when the business ends, my first thought is that it does (I would need to look up the rules).  

[asender]

Thank you so much for the quick reply.  It's much appreciated.

As of now, my draft Form 8995, Line 16,  for 2020 shows a Qualified Business Loss Carryforward of -$xxx,xxx.  Based on your response, and assuming this QBI is as valid as the TurboTax form shows, my question becomes "can I use this QBI loss carryforward to reduce my current year income?"  

If the answer is "yes", I think it may be possible to carry the loss back for five years under the CARES Act although I doubt I would do that since I understand I can carry forward QBI indefinitely into the future.  

Again, thanks for helping to clarify this.  

[AmeliesUncle]

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@asender wrote:

"can I use this QBI loss carryforward to reduce my current year income?"  

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No.  Actually, a negative QBI carryover is sort of a BAD thing to have, not a good thing.

QBI is a relatively new special deduction for some people that have a business.  The negative carryover just means that if you had a business, your QBI deduction would be smaller.  

[tamara5]

@JotikaT2  Unfortunately, my TurboTax does not match your description. There is no black panel on the left side of my screen when I open TurboTax. I have never seen a screen titled, "Let's get your state taxes done right." There is no screen I have ever seen that looks like the "Status of your state returns" screenshot you included in your reply. Please escalate my question. When I open TurboTax, I see "Work on a Tax Return" in a blue bar near the top of my screen. Below that are options, "Start a new Tax Return" and "Continue a Tax Return" with below that the words, "Pick up a return and continue where you left off." And then a link to click on to go to my 2020 return.  Again, please escalate this question and/or email me contact information so I may contact a TurboTax staff member directly to resolve this issue. Thank you.

[JotikaT2]

Based upon your description, you are working in the downloaded version of the program which is slightly different.  This accounts for the differences in screens as the directions provided were for the online software.

As this is a business return, the input will differ.

Log back into your business return and select the Federal Taxes Tab.

1. Select Deductions
2. Scroll down to Business Expenses
3. Select Net operating loss (NOL) carryover 
4. Select No on the screen asking if your company had any NOL Carryovers
5. This should flow into your state return and remove the error and request for a SIC code.

If you are still having issues, please contact us using the link below.

Contact TurboTax

@tamara5

[42psmith]

I have business expenses for 2018 & 2019 for self-publishing which I never declared (kept a profit on taxes for those years). Can I used those past undeclared expenses as NOL?