How to Carry Back a Net Operating Loss

The rules:

  • First, go back two years prior to the NOL year.
    • For example, if you have an NOL in 2013, go back to 2011.
    • Recalculate your 2011 tax liability by taking into account the amount of the NOL deduction.
  • If any portion of the NOL still remains after going back two years, subtract the remaining NOL from income in the first year prior to the NOL year.
    • For example, if you had a $10,000 NOL in 2013 and only $6,000 was used up in 2011, you would carry the remaining $4,000 to 2012, then recalculate your 2012 tax liability by taking into account the $4,000 NOL deduction.
  • If the NOL is still not used up in the first year prior to the NOL year, carry the remaining amount forward one year after the NOL year.
    • For example, if only $2,000 of the $4,000 carried to 2012 was used up, you carry the remaining $2,000 to 2014, one year after the NOL year.
  • If the $2,000 NOL carried to 2014 is not used up, carry any remaining NOL to 2015.
  • Continue carrying forward any unused portion of the $2,000 NOL up to a maximum of 20 years. After that, any remaining NOL is lost.

How to Report an NOL Carryover

When carrying an NOL forward, enter the NOL amount as a minus number on line 21 of Form 1040 and attach a statement to your return explaining how the carryover was computed.

Carryback Rule for an Eligible Loss

An eligible loss may be carried back three years. An eligible loss is any part of an NOL that is from:

  • A casualty or theft
  • A loss attributable to a Presidentially declared disaster for a qualified small business

A qualified small business for NOL purposes is a sole proprietorship or partnership that had average annual gross receipts (less returns and allowances) of $5 million or less during the 3-year period ending with the tax year of the NOL.

Farming Loss:

A farming loss may be carried back five years.

Recomputing Your Tax Liability

When you carryback an NOL, you must recompute your new tax liability in that year by taking into account the NOL deduction. You should receive a refund. Use Form 1045 to compute the decrease in your tax for the carryback year.

File your personal and small business taxes (Schedule C)