2. a) What types of adjustments must be made in order to convert negative taxabl

Question

2. a) What types of adjustments must be made in order to convert negative taxable income into an NOL? b) Carlos (single) reports on his 2016 tax return negative taxable inome of $38350. Included in this amount is business income of $70000 and business deduction of $98000. Carlos took the standard deductin and claimed one personal exemption Compute Carlos' 2016 NOL assuming that no other adjustments are necessary. c) What would be the amount of the NOL if, in Part b., Carlos' gross income included net nonbusiness long-term capital gains of $10,000 and business income of $60000?

Explanation / Answer

All amounts are in $

2a. Following adjustments should be done for making negative taxable income into NOL:

1. Do not deduct items which are for personal exemptions

2. Do not claim capital losses in excess of capital gains

3. Do not claim section199 domestic production activities

4. Do not claim NOL deductions from other years

5. Do not claim non-business dedcutions

2b. Carlos'2016 NOL is

Business Dedeuction - Business Income

98000 - 70000 = 28000

2c. Carlos NOL if there is non business long term capital gains

Business deductions - Business income - capital gains

98000 - 60000 - 10000 = 28000

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