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Handling Restricted NOLs in Business returns

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📊 Step-by-Step Guide

Step 1: Go to the correct worksheet location

Use this when you need to find where the carryover information is entered.

Go to line 29 of the 1120 Pg 1, link to the Current-Year NOL Carryover Worksheet.

Step 2: Complete the correct lines based on the year

Use this when you need to enter the correct information for first-year vs. prior-year carryovers.

If this is the first year, complete Part I, lines B and C. If this is not the first year, complete lines B, C, and possibly D2.

Step 3: Enter the carryover percentage for future years

Use this when you need to ensure the same percentage is used each following year.

Complete the Current Year NOL Carryover Worksheet with the percentage, which is to be used each following year.

Step 4: Complete the Election Explanations form

Use this when you need to document why the NOL is restricted and how the percent was determined.

Complete an Election Explanations form, stating why it is a restricted NOL and how the percent was reached.

In order to add the Election Explanations form, select the Add/Display Forms List tab. Type election in the Look For box. Next, open the Election and Regulation Explanations and enter the information. This will check the form off in the Form Tree and be included in the e-file.

Step 5: Repeat the Election and Regulation Explanations each year

Use this when the restricted loss continues to carry forward into later tax years.

Complete the Election and Regulation Explanations form each year that the restricted loss carries forward.

Tags: federal,form