When can a net operating loss (NOL) be used?
A Wisconsin NOL incurred in taxable years beginning before January 1, 2014, may be carried forward and offset against Wisconsin income of the next 15 taxable years.
A Wisconsin NOL incurred in taxable years beginning on or after January 1, 2014, may be carried back for two taxable years and then carried forward and offset against Wisconsin income of the next 20 years.
Note: A Wisconsin NOL may not be used to offset Wisconsin income unless the loss is computed on a return that is filed within 4 years of the unextended due date for filing the original return. A carry-back may not be used to offset Wisconsin income unless the loss is claimed on a return that is filed within 4 years of the unextended due date for filing the original return.
I have a Wisconsin NOL, but not a federal NOL. Can I carry the NOL forward or back and offset my loss against taxable income of another year?
Depending on whether you are a full-year resident, part-year resident, or nonresident of Wisconsin, you may or may not be allowed to claim a Wisconsin NOL.
Full-Year Resident
In order to claim a Wisconsin NOL, you must have a federal NOL.
Part-Year Resident/Nonresident
A federal NOL, although not computed on the federal income tax return filed with the Internal Revenue Service (IRS), may result for Wisconsin purposes if you are a part-year resident or nonresident of Wisconsin. The federal NOL should be refigured without regard to income which is not taxable to Wisconsin. If this results in a federal NOL, you are entitled to compute a Wisconsin NOL.
"Federal NOL" is your federal net operating loss as computed under the federal Internal Revenue Code in effect for Wisconsin tax purposes.
Exception: Losses from tax-option (S) corporations may be claimed even if there is no federal NOL. Wisconsin modifications cannot create an NOL except adjustments from tax-option (S) corporations.
-
Do I have to make a formal election when I want to claim the NOL carryback?
No. Filing Form X-NOL for the year of the carryback is all that is necessary. Form X-NOL is used by residents, part-year residents, and nonresidents and estates and trusts when carrying back a Wisconsin NOL. Use Form X-NOL for each year to which you are claiming a carryback of an NOL. For example, if you incurred an NOL for 2017 that you want to carry back to 2015 and 2016, you must file both a 2015 Form X-NOL and a 2016 Form X-NOL.
Is there any particular order to carry back the loss?
Yes. If you choose to carry back the loss to the second preceding year, compute the amount of loss allowed for this year first. You may then use any remaining loss in the first preceding year and each succeeding year for up to 20 years from the year you incurred the loss.
If you choose to carry the loss back to only the first preceding year, compute the amount of loss allowed. You may then use any remaining loss for each succeeding year for up to 20 years from the year you incurred the loss.
Am I required to carry back the NOL?
No. The carryback of an NOL is an election. You may choose to only carry the NOL incurred in taxable years beginning on or after January 1, 2014, forward for up to 20 years.
Is there an election to make on the Wisconsin return if we choose not to claim the two-year carryback?
No. If Form X-NOL is not filed, it will be assumed that the taxpayer has elected not to use the carryback provision.
Should Form X-NOL be attached to the Wisconsin income tax return?
Form X-NOL is a stand-alone form and should not be attached to Form 1. If Form X-NOL is filed electronically, Form W-RA must be submitted with any required attachments. If paper filed, the Form X-NOL that is mailed to the department should include any required attachments. Persons who originally filed Form 1NPR should also use Form X-NOL to claim an NOL carryback. The revised tax computation will require a revised Form 1NPR that shows the tax calculation to be submitted with Form X-NOL.
What are worksheets 1 through 4 and how do I use them?
Worksheets 1 through 4 are included in Wisconsin
Publication 120,
Net Operating Losses for Individuals, Estates, and Trusts.
Worksheet 1 is used to compute your Wisconsin NOL. Complete this worksheet in the year you incur a Wisconsin NOL.
Worksheet 2 is used to compute your Wisconsin modified taxable income. "Modified taxable income" is the amount of NOL used in a carryback or carryforward year. If you carried back or carried forward your NOL, figure your modified taxable income for that year.
Worksheet 3 is used to keep track of your Wisconsin NOL. Record on Worksheet 3 the original amount of NOL incurred and the amount of loss used each year. The amount of loss used each year is equal to your Wisconsin modified taxable income as computed on Worksheet 2.
Worksheet 4 is used to figure the allowable deduction for a Wisconsin NOL carryforward.
Enclose copies of your NOL worksheets with your tax return for the year you incur the Wisconsin NOL and any other years for which you use an NOL carryback or carryforward.
I am a part-year Wisconsin resident. Should I use the same worksheets as a full-year resident?
Yes. However, the Wisconsin standard deduction and the personal exemption must be prorated for Worksheets 2 and 4. For more information, see the instructions for these worksheets in Wisconsin Publication 120.
Federal law does not allow nonbusiness deductions in excess of nonbusiness income in computing the NOL. What is the difference between business and nonbusiness income and deductions?
Business income and deductions are those that are related to your trade or business or your employment. Nonbusiness income and deductions are those that are unrelated to your trade or business or your employment.
Some examples of business and non-business income and deductions are as follows:
Business income
Salaries and wages
Self-employment income
Business income from tax-option (S)
corporations and partnerships
Rental income
Unemployment compensation
Business deductions
Rental losses
Educator expenses
Business losses from tax-option (S)
corporations and partnerships
Self-employed health insurance deduction |
Nonbusiness income
Dividends
Interest
Alimony
Pensions and annuities
Nonbusiness deductions
Federal standard deduction
IRA deduction
Student loan interest deduction
Alimony paid |
See federal Publication 536, Wisconsin Publication 120, and the instructions for federal Form 1045 for more details.
Will I have the same business and nonbusiness income and deductions for federal as for Wisconsin?
If there are any adjustments made on Wisconsin Schedule I or additions and subtractions on lines 4 and 11 of Wisconsin Form 1, your business and nonbusiness income and deductions will differ from federal purposes. For example, if you had $600 of interest income for federal purposes, and a subtraction of $200 for interest from U.S. Government securities on line 7 of Form 1, you would only include $400 of interest income as nonbusiness income ($600 less $200 U.S. Government interest).
What are considered business capital gains?
Business capital gains include gains from the sale of business assets as reported on federal Form 4797 and those capital gains as reported on Wisconsin Schedule 3K-1 and 5K-1.
Does the NOL carryback provision apply only to individuals?
The NOL carryback applies to individuals, estates, and trusts.
Can Form X-NOL be used to adjust Wisconsin income for items not related to the NOL carryback?
No. Do not use Form X-NOL to adjust your Wisconsin income for items not related to the NOL carryback. These items must be adjusted by amending Wisconsin Form 1 or 1NPR prior to filing Form X-NOL. When you amend your Wisconsin return for a federal NOL carryback, additional wages, or other income adjustment the following income items and deductions may be affected, such as:
- The Wisconsin taxable amount of unemployment income.
- The retirement income exclusion.
- The amount of passive activity loss allowed due to a change in your modified adjusted gross income.
- The tuition and fees deduction.
- The student loan interest deduction.
- The amount of itemized deductions allowed.
- The amount of the earned income credit.
Do not adjust for these items on Form X-NOL. Instead, you must file an amended Wisconsin Form 1 or 1NPR to adjust your Wisconsin income and use the adjusted income from line 13 of Form 1 or line 32 of Form 1NPR on Form X-NOL, line 2 of column A.
Example: You incurred both a federal and Wisconsin NOL for 2017. You decided to carry back both your federal NOL and your Wisconsin NOL to 2015 and 2016. When you carry back the federal NOL to 2015, this reduces your 2015 federal adjusted gross income (FAGI). Because your 2015 FAGI is reduced, you now qualify to claim the $5,000 Wisconsin retirement income exclusion for 2015. The adjustment to FAGI and your Wisconsin retirement income is not related to the carryback of your Wisconsin NOL. Therefore, you must first file an amended 2015 Form 1 to recompute/amend your Wisconsin income. A 2015 amended return is filed by using Form 1 and checking the space at the top of the 2015 Form 1 to indicate that it is an amended return. You then complete 2015 Form X-NOL by entering the amended Wisconsin income from line 13 of 2015 Form 1 on line 2, Column A, of Form X-NOL.
If you amend your 2016 federal return for the federal carryback of the NOL, you must follow the same procedure as for 2015; that is, first file an amended 2016 Form 1 before filing the 2016 Form X-NOL to claim the carryback of the 2017 Wisconsin NOL. You then complete 2016 Form X-NOL by entering the amended Wisconsin income from line 13 of the amended 2016 Form 1 on line 2, Column A, of Form X-NOL.
FOR MORE INFORMATION PLEASE CONTACT:
MS 5-77
WISCONSIN DEPARTMENT OF REVENUE
Customer Service Bureau
PO Box 8949
Madison, WI 53708-8949
Phone: (608) 266-2486
Fax: (608) 267-1030
Email additional questions to
DORIncome@wisconsin.gov