Agriculture
Income Tax Information - Net Operating Losses (NOL)
If your deductible loss from operating your farm is more than your other
income for the year, you may have a net operating loss (NOL). You may also have
an NOL if you had a personal or business-related casualty or theft loss that was
more than your income.
Note: If you have an NOL this year, you can carry it to
other years and deduct it. You may be able to get a refund of all or part of the
income tax you paid for past years, or you may be able to reduce your tax in
future years.
Carry-backs
Generally, you carry an NOL back to the two tax years before the NOL year and
deduct it from income you had in those years. You can choose not to carry back
an NOL and only carry it forward. There are rules for figuring how much of the
NOL is used in each tax year and how much is carried to the next tax year. These
rules are explained in
Publication 536.
Unless you choose to waive the carryback period, as discussed later, you must
first carry the entire NOL to the earliest carryback year. If your NOL is not
used up, you can carry the rest to the next earliest carryback year, and so on.
Refigured Tax
Refigure your deductions, credits, and tax for each of the years to which you
carried back an NOL. If your refigured tax is less than the tax you originally
paid, you can apply for a refund by filing
Form 1040X,
Amended U.S. Individual Income Tax Return (PDF), for each year affected, or
by filing
Form 1045 (PDF). You will usually get a refund faster by filing Form 1045,
and generally you can use one Form 1045 to apply an NOL to all carry-back years.
Exceptions to 2-Year Carry-back Rule
Eligible Losses
Eligible Losses qualify for longer carry-back periods. The carry-back period
for an Eligible Loss is 3 years. An Eligible Loss is any part of an NOL that:
-
Is from a casualty or theft, or
-
Is attributable to a Presidentially declared disaster for a qualified
small business
Note: An eligible loss does not include a farming loss.
Farming Loss
Farming Losses qualify for longer carry-back periods. The carry-back period
for a Farming Loss is 5 years. A Farming Loss is the smaller
of:
-
The amount which would be the NOL for the tax year if only income and
deductions attributable to farming businesses were taken into account, or
-
The NOL for the tax year
You can choose to treat a farming loss as if it were not a farming loss. If
you make this choice, the loss is subject to the 2-year carry-back period. For
more information, refer to, When To Use an NOL in
Publication 536.
Carryovers
If you do not use up the NOL in the carry-back years, carry forward what
remains of it to the 20 tax years following the NOL year. Start by carrying it
to the first tax year after the NOL year. If you do not use it up, carry over
the unused part to the next year. Continue to carry over any unused part of the
NOL until you use it up or complete the 20-year carry-forward period.
For an NOL occurring in a tax year beginning before August 6, 1997, the
carry-forward period is 15 years.
Additional Resources
Publication 225, Farmer's Tax Guide
Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and
Trusts
