Arkansas Administrative Code › Agency 006 - Department of Finance and Administration › Division 05 - Division of Revenues › Regulation 1997-4 - Comprehensive Individual Income Tax Regulations › Rule 26-51-427 - DEDUCTIONS - NET OPERATING LOSS CARRYOVER › Rule 1.26-51-427 - Net Operating Loss Carryover

Current through Register Vol. 49, No. 6, June, 2024
The net operating loss carryover (NOL) is the excess of
					 allowable deductions over gross income derived from a trade or business for the
					 taxable year. This loss may be carried over to the next succeeding taxable year
					 and annually thereafter for a total period of three (3) years, succeeding the
					 year of the year of the net operating loss, if the loss occurred in an income
					 year before January 1 1987, and five (5) years if the loss occurred on or
					 before January 1, 1987, or if the loss has been exhausted or absorbed by the
					 taxable income of any succeeding year, whichever is earlier. The NOL must be
					 carried forward in the order named above.
Taxable income as used in the paragraph above is the amount
					 realized after the deduction of personal itemized deductions from the adjusted
					 gross income (AGI), and if no itemized deductions, then taxable income will be
					 the same as the AGI. The NOL calculated from a qualified previous year may be
					 exhausted or absorbed in part by this amount.
The NOL must be reduced by all non-taxable income, less any
					 expenses properly and reasonably incurred in earning non-taxable income, not
					 required to be reported as gross income.
Non-taxable income includes, but is not limited to, the
					 first six thousand dollars ($6,000.00) of military pay or retirement, the first
					 six thousand dollars ($6,000.00) of a public or private employment - related
					 retirement or disability system, and any other income that is exempt under ACA
					 26-15-404.
Gross income is the total income of all items listed,
					 except an NOL, on the lines of the individual returns and before any
					 adjustments are considered.
Gross income not derived from a trade or business is also
					 known as non - business income. Non - business income includes, but is not
					 limited to, personal savings interest, dividends, annuity distributions,
					 endowments, and non - taxable income not required to be reported. Non -
					 business deductions are those expenses incurred during the year and reported on
					 the itemized deduction schedule with the exception of unreimbursed employee
					 expenses.
In the case of a taxpayer other than a corporation, non -
					 business deductions shall be eliminated from the deduction otherwise allowable
					 for the taxable year to the extent that they exceed non - business income.
					 Personal exemptions and credit for dependents shall not be a deduction for the
					 purpose of computing a net operating loss.
EXAMPLE 1:
Mr. Smith reported the following
					 income items on his 1995 tax return:
Wages..............................................
$ 5,000.00
Interest.............................................
$ 500.00
Business (Sch. C)
								  ...........................
($ 25,000.00)
Capital
								  Gain....................................
$ 2,000.00
Farm (Sch.
								  F)..................................
($ 15,000.00)
Pension............................................
$ 6,000.00
IRA
								  Distribution.............................
$ 2,500.00
Other items on Mr. Smith's tax return include forfeited
					 interest penalty on premature IRA withdrawal of $50 and itemized deductions
					 consisting of mortgage interest, contributions and miscellaneous deductions
					 totaling $8,000.
Adjusted gross income (AGI) for Mr. Smith is ($30,000) and
					 taxable income is ($38,050) calculated as follows:
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NET OPERATING LOSS (Net Non-Business Income - Net
					 Business Loss)......($ 32,050.00)
EXAMPLE 2:
Same information as Example 1
					 except Itemized Deductions are $10,000 and includes a $2,000 deduction for
					 Unreimbursed Employee Expenses.
AGI equals ($30,050) and taxable income equals ($40,050)
					 computed as follows:
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NET OPERATING LOSS (Net Non-Business Income - Net
					 Business Loss)......($ 34,050.00)