Net Operating Losses If your deductible loss from operating your farm (after applyingthe at-risk and passive activity limits explained in the precedingdiscussion) is more than your other income for the year, you may havea net operating loss (NOL). You may also have an NOL if you had apersonal or business-related casualty or theft loss that was more thanyour income. If you have an NOL this year, you can carry it to other years anddeduct it. You may be able to get a refund of all or part of theincome tax you paid for past years, or you may be able to reduce yourtax in future years. To determine if you have an NOL, complete your tax return for theyear. You may have an NOL if a negative figure appears on the lineshown below. Individuals--line 37 of Form 1040. Estates and trusts--line 22 of Form 1041. Corporations--line 30 of Form 1120 or line 26 of Form1120-A. If the amount on that line is zero or more, you do not have an NOL. There are rules that limit what you can deduct from gross incomewhen figuring an NOL. These rules are discussed in detail underHow To Figure an NOL in Publication 536. In general, these rules do not allow the following items. Personal exemptions. Capital losses in excess of capital gains. (Nonbusinesscapital losses may only offset nonbusiness capital gains.) The section 1202 exclusion of 50% of the gain from the saleor exchange of qualified small business stock. Nonbusiness deductions in excess of nonbusinessincome. Net operating loss deduction. Example.Glenn Johnson is a dairy farmer. He is single and has the followingincome and deductions on his Form 1040 for 2000. INCOME Wages from part-time job $1,225 Interest on savings 425 Net long-term capital gainon sale of farm acreage        2,000 Glenn's total income $3,650 DEDUCTIONS Net loss from farming business (income of$67,000 minus expenses of $72,000) $5,000 discount hotels in HagueNet short-term capital losson sale of stock 1,000 Standard deduction 4,400 Personal exemption        2,800 Glenn's total deductions $13,200 Glenn's deductions exceed his income by $9,550 ($13,200 -$3,650). However, to figure whether he has an NOL, he must modifycertain deductions. He can use Schedule A (Form 1045) tofigure his NOL. Glenn cannot deduct the following items. Nonbusiness net short-term capital loss $1,000 Nonbusiness deductions(standard deduction, $4,400) minusnonbusiness income (interest, $425) 3,975 Personal exemption        2,800 Total adjustments to net loss $7,775 When these items are eliminated, Glenn's net loss is reduced to$1,775 ($9,550 - $7,775). This is his NOL for 2000. Carrybacks.Generally, you carry an NOL back to the 2 tax years before the NOLyear and deduct it from income you had in those years. You can choosenot to carry back an NOL and only carry it forward. See Waivingthe carryback period, later. There are rules for figuring howmuch of the NOL is used in each tax year and how much is carried tothe next tax year. These rules are explained in Publication 536. Unless you choose to waive the carryback period, as discussedlater, you must first carry the entire NOL to the earliest carrybackyear. If your NOL is not used up, you can carry the rest to the nextearliest carryback year, and so on. Refigure your deductions, credits, and tax for each of the years towhich you carried back an NOL. If your refigured tax is less than thetax you originally paid, you can apply for a refund by filing Form1040X, Amended U.S. Individual Income Tax Return, for eachyear affected, or by filing Form 1045. You will usually get a refundfaster by filing Form 1045, and generally you can use one Form 1045 toapply an NOL to all carryback years. Exceptions to 2-year carryback rule.Eligible losses and farming losses qualify for longer carrybackperiods. Eligible loss.The carryback period for an eligible loss is 3 years. An eligibleloss is any part of an NOL that: Is from a casualty or theft, or Is attributable to a Presidentially declared disaster for aqualified small business. An eligible loss does not include a farming loss (explained next). Farming loss.The carryback period for a farming loss is 5 years. A farming lossis the smaller of: The amount which would be the NOL for the tax year if onlyincome and deductions attributable to farming businesses were takeninto account, or The NOL for the tax year. You can choose to treat a farming loss as if it were not a farmingloss. If you make this choice, the loss is subject to the 2-yearcarryback period. For more information, see When To Use an NOLin Publication 536. Carryovers.If you do not use up the NOL in the carryback years, carry forwardwhat remains of it to the 20 tax years following the NOL year. Startby carrying it to the first tax year after the NOL year. If you do notuse it up, carry over the unused part to the next year. Continue tocarry over any unused part of the NOL until you use it up or completethe 20-year carryforward period. Caution: For an NOL occurring in a tax year beginning before August 6, 1997,the carryforward period is 15 years. Waiving the carryback period.You can choose not to carry back your NOL. If you make this choice,you use your NOL only in the carryforward period. To make this choice, attach a statement to your tax return for theNOL year filed on or before the due date of the return (includingextensions). This statement must show you are choosing to waive thecarryback period under section 172(b)(3) of the Internal Revenue Code.Also, if you filed your return timely without making that choice, youmay still make the choice by filing an amended return within 6 monthsof the due date of the return (excluding extensions). Attach thestatement to the amended return and write "FILED PURSUANT TO SECTION301.9100-2" on the statement. File the amended return at thesame address you filed the original return. Once made, the choice isirrevocable and the carryforward is limited to 20 years. Partnerships and S corporations.Partnerships and S corporations cannot use an NOL. But partners orshareholders can use their separate shares of the partnership's or Scorporation's business income and business deductions to figure theirindividual NOLs.