NOL Carryover computation

[carolynm]

Is it me or is my 2007 ATX not computing the correct NOL Carryover when I roll forward this return:

Facts:

Clients nol carryover from 2006 to 2007: $120,000

Clients AGI (disregarding the prior year nol) $10,000

Clients Itemized deductions: $20,000

Is the NOL carryover to 2008 not still the whole $120,000? ATX is reducing it by the $10,000 in income on page 1. Don't the itemized deductions offset this when calculating modified income?

Thanks

Carolyn

[Diane]

I also found that ATX does not calculate the correct carryover amount. I had a similar problem last year. A carryover 2007 NOL to 2008. ATX did not calculate the NOL carryover to 2009 correctly. I now keep my own calculations and do not use ATX's figures.

Diane

[TAXBILLY]

What kind of income is the $10,000?

If it's interest, dividends or pension it would not absorb any of the NOL.

If it is wages and/or rental income it would absorb part of the NOL.

If it is capital gains, is it business or non business?

taxbilly

[Diane]

Why wouldn't the carryover NOL absorb the interest/dividend/pension/wage/rental income? I know there is an adjustment for any current capital losses, but I know of no adjustment that would not take into account all the current year income. Also, you get to use the current year itemized deductions (except for some recalculations) in arriving at the current year taxable income. If there are no current year capital losses and no recalculation for the current year itemized deductions, I calculate that none of the NOL carryover was used in 2007 and the whole $120,000 would therefore be carried over to 2008.

Diane

[TAXBILLY]

The theory of a Net Operating Loss is that it is a business loss and therefore can only absorb business income. If you have no business income than the NOL will continue forward. However, if there is business income then that portion will use up some of the NOL. There is a more comprehensive worksheet on pages 18 and 19 of the Pub:

http://www.irs.gov/pub/irs-pdf/p536.pdf

taxbilly

[carolynm]

I calculated the loss carryover using this IRS woksheet

Is this not the correct worksheet?

Diane - I'm with you, I just don't think the program calculates this correctly.

[Diane]

In the NOL year you adjust for business/non business income and expenses to calculate the actual NOL. In the carryover/carryback years you only adjust for capital losses, exemptions, certain adjustments to income and the itemized deduction recalculations. I don't see anywhere where you have to differentiate between business/non business income/expenses.

Diane