40.19 Your Net Operating Loss

A net operating loss is generally the excess of deductible business expenses over business income. The net operating loss may also include the following losses and deductions:

• Casualty and theft losses, even if the property was used for personal purposes; see Chapter 18.
• Expenses of moving to a new job location; see Chapter 12.
• Deductible job expenses such as travel expenses, work clothes, costs, and union dues (19.3).
• Your share of a partnership or S corporation operating loss.
• Loss on the sale of small business investment company (SBIC) stock.
• Loss incurred on Section 1244 stock.

An operating loss may not include:

• Net operating loss carryback or carryover from any year.
• Capital losses that exceed capital gain.
• Excess of nonbusiness deductions over nonbusiness income plus nonbusiness net capital gain.
• Deductions for personal exemptions.
• A self-employed person’s contribution to a Keogh plan.
• An IRA deduction.

Income from other sources may eliminate or reduce your net operating loss.

Filing Instruction

Adjustment for Capital Losses

A net nonbusiness capital loss may not be included in a net operating loss. If nonbusiness capital losses exceed nonbusiness capital gains, the excess is an adjustment that reduces your loss on Schedule A of Form 1045. In figuring your loss, you may take into account business capital losses only up to the total of business capital gains plus any nonbusiness capital gains remaining after the adjustment for nonbusiness deductions.

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