On the Federal 1040x, when carrying back a loss to a year that had a gain, should the objective be to take back just the portion of the loss that exactly covers the gain, and not one dollar more? Or are you required to take back the entire loss or none of it at all?
I have an old return where the accountant apparently took back much more than what was required to cover the gain. That has the unfortunate side effect of moving back by two years the time period during which you can later take the residual loss carryforward?
To use a specific example, let's say the year 1998 1040 return shows a $40K gain. In year 2000 you have a $50K loss. If you carry back $50K to 1998 by filing 1040x in 2000, and that wipes out the $40K gain in 1998. But you also move back by two years the time period during which you can take the residual $10K loss, moving forward?
If you are doing a carryback, you have to carryback the entire NOL, and only if there is any amount leftover does this remaining NOL go into the next year's return. In other words, you can't elect how much of the NOL to deduct. However, you can elect to not take any carrback, but just the carryforwards.
If you are doing a carryforward, you have to carryforward the entire NOL. There is no election to do a carryback.
(2) Amount of carrybacks and carryovers The entire amount of the net operating loss for any taxable year (hereinafter in this section referred to as the ?loss year?) shall be carried to the earliest of the taxable years to which (by reason of paragraph (1)) such loss may be carried. The portion of such loss which shall be carried to each of the other taxable years shall be the excess, if any, of the amount of such loss over the sum of the taxable income for each of the prior taxable years to which such loss may be carried. For purposes of the preceding sentence, the taxable income for any such prior taxable year shall be computed? (A) with the modifications specified in subsection (d) other than paragraphs (1), (4), and (5) thereof, and (B) by determining the amount of the net operating loss deduction without regard to the net operating loss for the loss year or for any taxable year thereafter, and the taxable income so computed shall not be considered to be less than zero. (3) Election to waive carryback Any taxpayer entitled to a carryback period under paragraph (1) may elect to relinquish the entire carryback period with respect to a net operating loss for any taxable year. Such election shall be made in such manner as may be prescribed by the Secretary, and shall be made by the due date (including extensions of time) for filing the taxpayer?s return for the taxable year of the net operating loss for which the election is to be in effect. Such election, once made for any taxable year, shall be irrevocable for such taxable year.
BeanSmart website is not affiliated with any of the manufacturers or service providers discussed here.
All logos and trade names are the property of their respective owners.