1040-IN: Ignoring NOL generated in current year when there is taxable income

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Indiana tax legislation passed in 2004 was intended to make net operating loss rules more favorable to taxpayers. However, an unintended consequence of the legislation, that has never been resolved, makes it feasible under certain circumstances to have both taxable income and a net operating loss in the same year starting with tax year 2004. The net operating loss may be carried forward, but it may not be applied to the taxable income from the year in which the loss occurred. For example, an NOL generated in tax year 2017 may be carried forward to be used as a deduction on the Indiana return in future years but may not be used as a deduction on the 2017 return.

If a taxpayer has both an NOL and taxable income in the current year, you have the option to mark the Ignore net operating loss checkbox in Screen INNOL to treat the current-year NOL carryforward amount as 0 (zero).

If a taxpayer has both an NOL and taxable income in a prior year, you have the option to mark the Ignore NOL checkbox in Screen INNOL-2 to treat the intervening year’s NOL carryback / carryforward amount as zero.

Indiana requires any NOL carryover amounts to be used as soon as there is taxable income available to absorb them and a taxpayer may not skip a year. For example, if the taxpayer has loss carryforward from Year 1, taxable income in Year 2, and taxable income in Year 3, the loss must be applied first to Year 2, then to Year 3.

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