Screen INNOL-2 - Indiana Net Operating Loss Carryover (1040)

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See also: 1040 Indiana frequently asked questions

Overview

Indiana allows a deduction on Schedule 2 or Schedule C of the current-year resident return for a net operating loss calculated on a prior year Indiana return via Schedule IT-40NOL and carried forward to the current year. The loss may be applied against current-year Indiana Adjusted Gross Income (as defined by Indiana tax law) and reported as a deduction.

Notes
  • An NOL carryforward is applied against Indiana adjusted gross income, not Indiana taxable income. Indiana AGI is typically greater than Indiana taxable income. Hence, under certain circumstances, certain current year deductions (e.g., Renter’s deduction) are effectively unused when applying NOL carryforward.
  • Indiana requires any NOL carryover amounts to be used as soon as there is taxable income available to absorb them. The 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.

To calculate a deduction on the current-year return for NOLs carried forward from prior years, enter data specific to the calculation of the prior-year NOL and prior-year Indiana AGI on Screen INNOL-2. UltraTax CS proformas this information if the return was prepared in UltraTax CS in the prior year. The information on Screen INNOL-2 is used as follows:

Note: UltraTax/1040-IN does not make NOL calculations for part-year residents or nonresidents. Use Screen INAdj and Schedule IT-40NOL in the non-calculating folder for NOL calculations to report with Form IT-40PNR.

Intervening Year’s Indiana AGI

An intervening year is simply a tax year with positive Indiana AGI to which a net operating loss can be applied. An NOL carryover must be used in the first year in which there is sufficient Indiana AGI to absorb the loss carryover. Based on data entry in the statement dialogs on this screen, Indiana AGI is calculated on the NOL Carryback and NOL Carryforward Worksheets according to Indiana tax law in order to determine the amount available to absorb a net operating loss carryover.

For tax years 2004 and later, enter data in the Income statement dialog from the tax year Form IT-40 and supporting schedules. Include Code 13, Amount from IT-40, line 1, Code 18, Exemptions, and any other adjustments from the return. This information proformas if UltraTax CS was used to prepare the return in prior years.

Schedule 2 Deduction

Indiana NOL carryforward from prior years applied against current-year Indiana AGI is reported as a deduction on Schedule 2. The forms and calculations are designed to use and report on the current-year Schedule 2 only the amount of net operating loss carryover necessary to reduce Indiana AGI to 0 (zero). Any unused loss is not included in the amount reported on Schedule 2. Instead, the unused portion is available to carryforward to the following year.

Carryback Period

Based on data entry on this screen, UltraTax CS determines the portion of a prior-year NOL that has already been used to offset Indiana AGI in intervening years subsequent to the loss year and intervening years prior to the loss year (for those losses that were eligible for carryback). For losses in tax years through 1997, UltraTax CS assumes a 3-year carryback unless you mark the checkbox to forgo carryback. For losses in tax years 1998-2010, if you do not mark the checkbox to forgo carryback, UltraTax CS assumes the entire amount of loss is eligible for 2-year carryback unless you enter the portion(s) of NOL eligible for 3-year and 5-year carryback. Losses from tax years 2011 and later are not eligible for carryback.

20-Year Carryover Items

Enter the amount for total Indiana income before deductions shown on Form IT-40 of the intervening year. UltraTax CS uses the Indiana Income field and the Adjust statement dialog to determine if there was an NOL for the applicable year. Do not enter Indiana AGI in this field.

If there was an NOL in the applicable year, UltraTax CS ignores any amount entered in the field for Indiana AGI.

Use these statement dialogs to enter adjustments and modifications from Schedule IT-40NOL of the loss year and to enter components of Indiana AGI from the intervening year in order to calculate the carryover worksheets. Enter all applicable components of income. Include information in the appropriate statement dialog(s) for all loss years and all intervening year(s). This information proformas if UltraTax CS was used to prepare the prior year return.

Loss years 2004 and later

For loss years 2004 and later, enter data in the statement dialog from the loss year Form IT-40 and Schedule IT-40NOL. This information proformas if UltraTax CS was used to prepare the return in prior years.

If UltraTax CS was not used to prepare the prior year return, enter the following amounts for each year, as applicable:

  • Code 12 - Amount from federal Form 1045, Schedule A-NOL. Enter the amount (positive or negative, as appropriate) from the last line of the schedule.
  • Code 13 - Amount from IT-40, line 1
  • Code 18 - Exemptions
  • Deductions (Choose from the fieldview to enter any that apply to the tax year.)
  • Add-Backs (Choose from the fieldview to enter any that apply to the tax year.)

If a net operating loss existed in the tax year, UltraTax CS calculates Schedule IT-40NOL for the loss year and then determines the portion of the loss that has already been applied to Indiana AGI in prior years. The remainder is applied to Indiana AGI in the current tax year as a Schedule 2 deduction (if sufficient Indiana AGI and no net operating loss in the current year) or carried forward.

Loss years 2003 and earlier

For loss years through 2003, enter data from Form IT-40 and Schedule IT-40NOL from the loss year in these statement dialogs and the Indiana Income field. UltraTax CS uses information entered here to determine if a loss existed under legislation that was in effect for the loss year. Specifically, UltraTax CS uses Indiana Income and the following modifications to determine if a loss existed during the tax year:

  • Capital losses in excess of capital gains (code 1)
  • Federal nonbusiness deductions in excess of Indiana nonbusiness income (code 2)
  • Interest on U.S. obligations (code 3)
  • Homestead residential property tax deduction (code 4)
  • Recovery of itemized deductions (code 5)
  • Taxable Social Security / Railroad benefits (code 6)
  • Non-Indiana locality earnings deduction (code 7)
  • Human services deduction (code 8)
  • Indiana partnership long-term care premiums deduction (code 9)
  • Holocaust victim’s payment deduction (code 10)
  • Other modifications (code 11)

If a net operating loss existed in the tax year, UltraTax CS then determines the portion that has been applied to any intervening years prior to 2004 (see "Carryback Period"). If any carryover remained at the end of 2003, UltraTax CS recalculates the net operating loss, determines the amount of recalculated carryover applied to post-2003 intervening years, and calculates Schedule IT-40NOL according to 2004 legislation (as described above). Thus, it is important to enter all adjustments (add-backs and deductions) from the original loss year as they may be used in re-calculating an NOL under 2004 legislation. If there is no net operating loss carryover from a given pre-2004 tax year remaining at the end of 2003 or if there is no original net operating loss from the given year, the taxpayer may not recalculate any NOL for the given year.

Enter the amount of Indiana AGI, as defined by Indiana tax law for the intervening year, plus the amount shown as NOL deduction on Schedule 1 (used through tax year 2008) or Schedule 2 (used 2009 - present) of the intervening year. Do not enter total Indiana income in this field.

UltraTax CS combines the amounts in this field and the field for AGI Offset to determine whether there is remaining AGI in the intervening year to which losses have been or can be applied. If the combination of those amounts is zero or less, or if an NOL was generated for the applicable year, UltraTax CS assumes that there is no AGI in the intervening year to which losses have been or can be applied. If the combination of those amounts is positive and there is no NOL for the intervening year, UltraTax CS assumes that the remaining AGI is available to absorb NOL carryovers from prior or subsequent years.

Use these fields only if it is not possible to enter certain information from prior years on this screen.

If there was an NOL generated in the applicable year and you are unable to enter the complete detail to show how the NOL was used, use this field to enter the portion of the NOL that has been previously used. Enter the amount previously used as a positive amount.

If there was positive AGI in a given intervening year that was offset by net operating losses from years earlier than those that appear on this screen, enter the total amount of those losses (from those earlier years) that were used in the given intervening year as a negative amount.

These fields are used by the NOL carryover worksheets in determining the amount of NOL that has already been applied to Indiana AGI in other years.

Enter 1 if an election was made to forgo the carryback of NOL on the federal return. Enter 2 if there was no federal NOL and an election was made to forgo the carryback of the Indiana NOL. By entering 1 or 2, UltraTax CS assumes that any NOL generated in the applicable year was carried forward.

These fields are used by the NOL carryover worksheets in determining the amount of NOL that has already been applied to Indiana AGI in other years.

Enter as a positive amount the portion of the loss for the applicable year that is eligible to be carried back 5 years. If the Forgo Carryback checkbox is marked, UltraTax CS ignores any amount you enter in this field.

These fields are used by the NOL carryover worksheets in determining the amount of NOL that has already been applied to Indiana AGI in other years.

Enter as a positive amount the portion of the loss for the applicable year that is eligible to be carried back 3 years. If the Forgo Carryback checkbox is marked, UltraTax CS ignores any amount you enter in this field.

An unintended consequence of Indiana tax legislation passed in 2004 makes it possible under certain circumstances to have both positive Indiana AGI and a net operating loss in the same year starting with tax year 2004. The net operating loss may be transferred to other years, but it may not be applied to the Indiana AGI from the year in which the loss occurred.

If a taxpayer has both an NOL and positive Indiana AGI in the current year, mark the Ignore net operating loss checkbox in Screen INNOL to treat the current year NOL carryback / carryforward amount as zero.

If a taxpayer had both an NOL and positive Indiana AGI in a prior year, mark the Ignore NOL checkbox in Screen INNOL-2 to treat the loss year’s NOL carryback / carryforward amount as zero.

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