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Craig’s Cars, a car dealership, has taxable income and net operating losses as follows:
Tax Year -Taxable Income/NOL
2012 – $30,000
2013 -$45,000
2014 – $80,000
2015 -($100,000)
2016 -$500,000
Craig’s Cars does not make an election regarding NOLs (i.e. Craig’s Cars will use the default carryover provisions). What will Craig’s Cars 2014 taxable income be after application of the NOL?
Expert Answer
When a taxpayer choose to carryback the NOL loss, the loss is applied to taxable income in first year which will generate the refund to the extent the taxpayer paid income tax . If there is any remaining NOL , it is carryforward to the next year. Such NOL can be carryforwarded up to 20 years.
Accordingly, the NOL in 2015 ie ($100,000) will be first adjust with the taxable income in 2012 & 2013 ,thereafter the remaining NOL ie ($25,000) will get adjusted with taxable income in 2014.
Craig’s Cars 2014 taxable income = $ 80,000- $ 25,000 = $ 55,000
