Publication 536

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Net Operating Losses

Overview

If your deductions for the year are more than your income for the year, you may have a net operating loss (NOL). An NOL year is the year in which an NOL occurs. You can use an NOL by deducting it from your income in another year or years.

What this publication covers. This publication discusses NOLs for individuals, estates, and trusts. It covers:

  • How to figure an NOL,
  • When to use an NOL,
  • How to claim an NOL deduction, and
  • How to figure an NOL carryover.

To have an NOL, your loss must generally be caused by deductions from your:

  • Trade or business,
  • Work as an employee,
  • Casualty and theft losses,
  • Moving expenses, or
  • Rental property.

A loss from operating a business is the most common reason for an NOL.

Partnerships and S corporations generally cannot use an NOL. However, partners or shareholders can use their separate shares of the partnership's or S corporation's business income and business deductions to figure their individual NOLs.

Keeping records. You should keep records for any tax year that generates an NOL for three years after you have used the carryback/carryforward or three years after the carryforward expires.

What is not covered in this publication? The following topics are not covered in this publication.

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