For most taxpayers, NOLs arising in tax years ending after 2020 can only be carried forward. See Net operating losses for more information.
To learn how to amend a prior-year individual return to show a net operating loss (NOL) carryback, follow the steps below:
- Under Input Return, select Miscellaneous Forms.
- Select Amended Return (1040-X), then General Information and Federal (1040X) and make any necessary entries in the Return(s) to Amend section.
- Scroll to the Federal Income Tax Return section and fill out the As Originally Reported and Correct Amount [Override] columns (this allows the program to calculate the difference for Form 1040X).
- Next, under Input Return, select Income.
- Select Net Operating Loss, then Federal Net Operating Loss.
- Enter the Year of loss, Initial Loss, and Carryover Available in 20XX.
- The NOL amount will show as Other Income on Form 1040 and Line 1, Form 1040X, column C.
In any amended return, always complete the entries in the Return(s) to Amend section before making changes to the return. This allows the program to calculate the changes automatically and fill out the Form 1040X, column C.
Why am I getting a critical diagnostic?
For tax year 2021, if there is an NOL for 2018 or newer, you'll receive diagnostic ref #53656:
"NOL #1: The program doesn't automate the limitation of post-2017 net operating losses to 80% of taxable income, before taking into account any NOL deduction. You must override the amount of post-2017 NOL carryforward absorbed this year so it does not exceed the 80% of taxable income limit."
To resolve this error, calculate the allowable amount of the NOL and enter the override on the Net Operating Loss screen in the NOL absorbed in 2021 field. See Net operating losses for the most up to date information from the IRS.