NOL from previous and current year on Married Joint 2018 Return

[Jason999]

Husband a Wife married in 2018 and are filing joint return for 2018.
Husband has a total NOL of 100K carried over from 2017 and prior years when he filed individual returns.

Husband has another NOL of 20K in 2018 from his S-Corp X where he is 100% shareholder.
Husband has W2 income of 30K in 2018 from another source.

Wife has never had a NOL and has a W2 income of 100K in 2018 from her own S-Corp Y where she is 100%

shareholder.

I understand that Husband's allowed deduction for NOL carryover NOL from years prior to 2018 when he was single

is limited to his own 2018 income therefore it is 30K and is not limited to 80% of his income.

Question 1:
Can Husband in addition to deducting 30K, deduct his 2018 S-Corp X NOL of 20K, in 2018 joint tax return? This

will be deducting Husband's 2018 20K NOL from his Wife's 2018 W2 income. This would result in total NOL

deduction of 50K on 2018 joint return. Is that possible?

The Publication 536 is quite confusing and I could not get my answer from studying it.

Question 2:
How do I enter this to TurboTax Home and Business? TurboTax just adds the numbers and that may be incorrect.

Thank you in advance.

[Critter]

You are making this much more difficult than it is ... the allowed NOL from 2017 is added to the 2018 return and it is used against all other income on the return ... there is no HIS/HERS on a joint return.   And the S-corp cannot have an NOL of it's own only the 1040 can have an NOL.  Seek local professional assistance since the TT program doesn't compute the NOL carryover from 2017 ... you need to compute it yourself. 

[Jason999]

Your answer is incorrect. Also I am very well aware that S-Corp income is passed through to 1040. No need to educate me on that. Please assume that I know a lot already. We are dealing here with W2 income only sourced from both corporations. Please do not assume that I need a tax professional because I am a dummy like most people asking questions here. I have been doing corporate taxes for many years. I have this new issue that I need help with from someone who has more knowledge than I do in this area.

[Jason999]

It took me a long time to prepare my question, only to get a troll response. This seems to be a useless forum filled with trolls.

[Anonymous_]

@Jason999 Your question is not only complex, but somewhat confusing. You indicated that you are preparing an individual (MFJ) return for 2018, but have an NOL for 2018? Obviously, you are aware that you use an NOL by deducting it from your income in another tax year or years but, again, I am not sure whether that resolves the issue here.

Generally, if you have an NOL for a tax year ending in 2018, you must carry the loss forward to future years. You may carry the losses forward indefinitely.

[dmertz · Accepted solution]

Take this with a grain of salt since I haven't looked into this situation before, but after reviewing Pub 536 I think that your assertion in Question 1 is correct, that you can apply $30k of your NOL carryforward from 2017 against your own $30k of W-2 income and your $20k of S corp loss from 2018 can be applied against your wife's $100k of W-2 income (because the individual tax return on which the $20k loss is first reported is your joint tax return).  Schedule 1 will have negative $20k on line 17 and negative $30k on line 21.

Regarding Question 2, you would have to tell TurboTax on the 2017 Net Operating Loss page that you have $30k of NOL from 2017 to apply to 2018.  TurboTax will then ask you to provide an explanation statement as to how the NOL carryforward applied to 2018 was determined (that you have $100k of your own NOL from 2017 but the amount you are applying is being limited to 100% of your own income).  That will leave $70k of your own NOL carryforward that you'll have to track yourself for application to future years in the same way as in 2018.

[Jason999]

Thank you Sir for taking time and effort to read and analyze my question.

For Question 1.
The most doubtful part was if I could take the extra 20K NOL from S-Corp to apply against Wife's W2 income.

I see the numbers flowing on 1040 form exactly as you state.

For Question 2.
I am doing precisely as you stated.

Let's see if anyone else who reads this will object or perhaps confirm everything. 

Again, thank you very much. I greatly appreciate your answer.

[Anonymous_]

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@Jason999 wrote:

The most doubtful part was if I could take the extra 20K NOL from S-Corp to apply against Wife's W2 income.

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That is now perfectly clear to me (it was not previously). I initially got the impression that you somehow figured an NOL on your individual income tax return rather than having the loss passed through to you on a K-1 from your S corporation. In that event, I agree that there should be no issue with applying the $20k loss against the W-2 income.

FWIW......

[Anonymous]

If you and your spouse were not married to each other in all years (2017) involved in figuring NOL carrybacks and carryovers, only the spouse who had the loss can take the NOL deduction. If you file a joint return, the NOL deduction is limited to the income of that spouse.

the 2018 loss from H's S-Corp is not a NOL but part of his current year net income.   so he can use $10K of the 2017 carryover.     I am assuming he has basis in the S-corp to take the $20K loss.

[dmertz]

HACKITOFF, are you saying that he can only use $10k of the carryforward because his $20k of S corp loss must be netted against his $30k of W-2 income, resulting in him having only $10k of his own income?  I hadn't considered that and actually seems more reasonable than what I originally thought.  In that case the amount on Schedule 1 line 21 would be negative $10k.

[Anonymous_]

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@dmertz wrote:

....because his $20k of S corp loss must be netted against his $30k of W-2 income, resulting in him having only $10k of his own income?  

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Do ordering rules come into play here? For example, if there were no NOL carryforward to consider, Husband had $0 income instead of $30k on a W-2, the $20k loss from the S corp (reported on the K-1) could still offset income (in this case exclusively from Wife) on a MFJ return, could it not?

Also, am I reading the following passage from Publication 536 wrong?:

Separate to joint return.

If you and your spouse file a joint return for a carryback or carryforward year, and were married but filed separate returns for any of the tax years involved in figuring the NOL carryback or carryover, treat the separate carryback or carryover as a joint carryback or carryover.

[Jason999]

To clarify this. We were not married prior to 2018 and we both filed individual returns. We have never had farm income therefore we can only do NOL carryforward.

[Jason999]

Yes, I confirm, Husband has basis in his S-Corp X to deduct full loss from his S-Corp that occurred in 2018.

True. The S-Corp X had a loss of 20K in 2018. Husband's 2018 W2 Wages (from a source unrelated to his S-Corp X) were 30K, therefore his S-Corp X loss could be fully offset Husband's 30K W2 wages leaving 10K of his W2 to absorb 10K of NOL carryover amounts from years prior to 2018. 

But, what this means is that Husband cannot offset any of his loss from Wife's 100K 2018 W2 wages, even though they were married in 2018 and file joint tax return for 2018. Is that a fact?

[Jason999]

Thank you guys for trying to help me figure this out. This part is pretty confusing. I can't find anything in p.536 to answer this. I am very grateful for the brainstorming.

[Jason999]

Another thing to keep in mind is that husband is 100% shareholder in his S-Corp X, where Wife has no ownership. I wonder if that makes a big difference as opposed to Husband's business being a Sole Proprietorship where Wife may automatically become a 50% shareholder upon getting married -> not sure if that's how that works when you get married.