Illustrated Form 1045, Schedule A

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Illustrated Form 1045, Schedule A

The following example illustrates how to figure an NOL. It includes filled-in pages 1 and 2 of Form 1040 and Form 1045, Schedule A.

Example.

Glenn Johnson is in the retail record business. He is single and has the following income and deductions on his Form 1040 for 2012. See the illustrated Form 1040, later.

INCOME
Wages from part-time job $1,225
Interest on savings 425
Net long-term capital gain on sale of real estate used in business 2,000
Glenn's total income $3,650

DEDUCTIONS
Net loss from business (gross income of $67,000 minus expenses of $72,000) $5,000
Net short-term capital loss
on sale of stock
1,000
Standard deduction 5,950
Personal exemption 3,800
Glenn's total deductions $15,750

Glenn's deductions exceed his income by $12,100 ($15,750 − $3,650). However, to figure whether he has an NOL, certain deductions are not allowed. He uses Form 1045, Schedule A, to figure his NOL. See the illustrated Form 1045, Schedule A, later.

The following items are not allowed on Form 1045, Schedule A.

Nonbusiness net short-term capital loss $1,000
Nonbusiness deductions
(standard deduction, $5,950) minus
nonbusiness income (interest, $425)
5,525
Deduction for personal exemption 3,800
Total adjustments to net loss $10,325

Therefore, Glenn's NOL for 2012 is figured as follows:

Glenn's total 2012 income $3,650
Less:
Glenn's original 2012 total deductions $15,750
Reduced by the disallowed items − 10,325 − 5,425
Glenn's NOL for 2012 $1,775

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Form 1040, page 1

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Form 1040, page 2

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Form 1045, page 2