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Flashcards in NET OPERATING LOSSES Deck (7):
1

NOL SOLE PROPRIETORSHIPS
NOL PASS THROUGHS
NOL C CORPS

NEED TO KNOW HOW ALL THREE ARE HANDLED

SEE OTHER CARDS

2

NOL SOLE PROPRIETORSHIPS
CARRYBACK AND CARRYFOWARD (YEARS)
WHAT CAN YOU ELECT TO WAIVE
WHAT EFFECT DOES THIS HAVE?

CARRYBACK 2 and carryforward 20
you can elect to waive carryback, but if you don't you lose the carryback years (i.e., they come off the top of the total and this is what you are left with for the 20 years)

once you make the election it's irrevocable

3

NOL's Partnerships
CB and CF
How does it impact basis?
How is it calculated?

2 and 20 for all, election not to use CBack must be made
NOL reduces outside basis to 0 (before the loss) and then anything over that is NOL

Partnerships and S corporations. Generally, a partner's share of the partnership loss (including capital loss) is allowed only to the extent of the adjusted basis of his or her partnership interest at the end of the partnership's tax year in which the loss occurred (but before reduction by the current year's loss). This is not necessarily the same as the balance in the partner's capital account. Any excess is allowed as a deduction in later years to the extent that the partner's basis is increased above zero.

4

NOL S Corps
Years

Partnerships and S corporations. Generally, a partner's share of the partnership loss (including capital loss) is allowed only to the extent of the adjusted basis of his or her partnership interest at the end of the partnership's tax year in which the loss occurred (but before reduction by the current year's loss). This is not necessarily the same as the balance in the partner's capital account. Any excess is allowed as a deduction in later years to the extent that the partner's basis is increased above zero.

The rules for S corporation shareholders are similar, with one major exception: a shareholder of an S corporation only increases his or her basis in the shares by any loans made directly from the shareholder to the corporation. Indebtedness guaranteed by a shareholder does not increase basis. Thus, a shareholder's basis in his or her interest will be less, in most cases, than a partner's.


5

NOL Corps
Carryback and forward

Regular (C) corporations. If your business is organized as a C corporation, any NOL it suffers provides no tax benefit to the shareholders. Such a loss can only be used by the corporation itself: it may be offset against the income of its subsidiaries (if any) if a consolidated return is filed, carried back against past income, or carried forward to reduce future income.

6

THREE LIMITATIONS ON LOSSES:
____________ ACTIVITY
_____________ RISK
_____________ LOSS

PASSIVE ACTIVITY
AT-RISK
NET OPERATING

7

RULES TO KEEP IN MIND:

APPLY INSTALLMENT SALE RULES

DEDUCT ALLOWABLE CAPITAL LOSSES

PHASE OUT PERSONAL EXEMPTOINS WITH CAPITAL GAINS INCLUDED IN TAXABLE INCOME

APPLY TAX RULES SEPARTELY TO CAPITAL GAINS AND OTHER INCOME

SEE ABOVE - PHASE OUTS?