NOL - carry forward

[Gretel]

Every year I stumble over this again. Boy, must I be stubborn or, worse, some part in my brain is not working well.

I hope I can make myself clear. The stumbling block are the itemized deductions. I can't even phrase my question, so hear is an example.

NOL carryover $30,000
used this year $10,000 before itemized deductions come into play

Lets assume item.deductions consist of mortgage and RE taxes only, than $10,000 does not change?

Now lets assume we also have medical expenses of $750, allowed fully on tax return but after re-calculation $0 is allowed for purposes of NOL carry forward. Then $10,750 is used of NOL?

Now lets assume same as above and in addition we have charitable contr of $1,000, not allowed on return but after re-calculation $1,000 is allowed. Then only 9,750 is used of NOL?

[JG EA]

Actually TTB explains this very well.

But, maybe this will help. Think of each process separately. The NOL is either figured on your computer or you used an NOL Worksheet. Then it gets carried to another year. As TTB explains you simply enter the NOL on the other income line.

It can't create another NOL with an NOL, but if it is not all used up then you need to figure how much of it can be used in the next year.

Now you use another worksheet to figure how much you are able to carryover, say from 2009 to 2010. It explains in TTB that this is for the purpose of not causing a double deduction. But at any rate we need to adjust the NOL to see how much can be used in 2010.

The carryforward based on the AGI of the current year (say 2009) you are working with. So, since it is based on AGI everything that is affected by AGI is changed. TTB has a list. Since stuff on A is affected by AGI then that stuff is also changed.

In your example mortgage interest and taxes would not be changed but Medical would.

Now you have your carryforward and simply put that number on line 21 of 2010. If it is not all used up you do another worksheet to see how much gets carried forward and so on.

In your example for medical - if it lowered the tax in the current year - then when you did your worksheet you'd find less used up and more carried over as you said.

[Gretel]

Thanks, JG, for giving me your understanding of the NOL. I read TTB and other source before posting and have a good understanding of the general workings of the NOL. My mistake probably is that I try to simplify my calculations and not go through the worksheets unless it is so complex that I have to.

My simple mind thinks, that if I understand the logic, I can take a shortcut. So, this is what I was trying to do, understand the logic of the itemized deductions. What also threw me of is that the worksheet I used did not take into account changes because of contributions.

I did the worksheet in my tax program and it confirmed my thinking. I don't know why I still feel insecure. I really would like to have a seasoned tax preparer look over my shoulder and say: Yes, child, this is correct.