1045 NOL Question

[Joel]

I have an NOL that is being carried back to a year that the taxpayers itemized. After the carry back the AGI is negative. Do I continue to use the itemized deductions or must I change to the standard deduction? The instructions are not clear in this situation. The decrease in tax is greater if I continue using the itemized deductions.

[Joel]

bump

Any thoughts?

[Gail in Virginia]

I don't really understand the question. If the AGI after the carryback is negative, why does it matter whether you itemize or take standard deduction? Isn't the tax zero either way?

[Maribeth]

I have an NOL that is being carried back to a year that the taxpayers itemized. After the carry back the AGI is negative. Do I continue to use the itemized deductions or must I change to the standard deduction? The instructions are not clear in this situation. The decrease in tax is greater if I continue using the itemized deductions.

Hmmm . . . . . have you determined the amount of the NOL carryback that is actually going to be used in the carryback year? Just off the top of my head, I don't believe that you could have a negative AGI created by the carryback. Figure out what amount of carryback is actually used, it is called the intervening year calculation. That should determine then what your itemized deductions are.

Maribeth

[Joel]

I made an error in my original calculations. For ease in calculating the tax after carryback I used a copy of the ATX tax return and entered the carryback as an NOL on line 21. This resulted in AMT cumming into play and being added to the zero regular tax. After realizing my error I redid the return with just a minus entry on line 21 and the AMT was not affected. Now the problem is gone and I have a correct 1045.

Thanks for the help anyway.