See "How an NOL affects the homestead property tax credit" below.
If you are filing a refund claim from the carryback of a Michigan
NOL, you must also file the appropriate amended credit claim forms
for each year the loss is being carried back. Attach the amended
credit claim forms to your MI-1045 form.
The total amount of the federal NOLD used to arrive at federal AGI
must be added back on your MI-1040. The Michigan NOLD is then
subtracted in its place on the MI-1040. This amount will be the
NOL determined on MI-1045, page 1, line 21 less any of the loss
used in previous years. See the MI-1040 instruction booklet for
specific line references for the years involved.
You must attach a copy of your federal income tax return (U.S.
1040) and any supporting federal tax schedules or forms that support
the NOL. Be sure to indicate the location (city and state) of any
income or loss. If you have income or loss subject to apportionment,
see MI-1040H Schedule of Apportionment.
How an NOL affects the homestead property tax credit
To determine household income for purposes of computing the
homestead property tax credit, the home heating credit, and the
farmland preservation tax credit, an NOLD is allowed. The amount
of the NOLD that is allowed cannot exceed your FMTI in the year
to which it is being carried back or carried forward. Claim the
amount of the allowed NOLD on the “other adjustments line” on
the appropriate credit forms for each applicable year. Caution: To
deduct an NOLD from household income, you
must have a
corresponding federal NOLD. If you have a Michigan NOLD, but
no federal NOLD, you cannot take an NOLD in household income.
Income and losses from other states, income and losses from oil
and gas production, and federal itemized deductions, must be
considered when calculating the NOL and NOLDs used for
household income. The amount of the allowable NOLD for use in
household income is calculated on page 3 of the MI-1045 form for
both carrybacks and carryforwards. The amount of the carryback
deduction will be the smaller of lines 46 or 47, and the amount of
the carryforward deduction will be the smaller of lines 46 or 52.
Example: Your 2004 FMTI is $20,000, and your 2004 federal
NOLD is $50,000. The amount of the 2004 NOLD of $50,000 that
may be used in 2004 household income is limited to $20,000. The
balance of $30,000 will be available for use in 2005 to the extent of
your 2005 FMTI.
For forms or questions
Michigan tax forms are available on Treasury's Web site at
www.michigan.gov/taxes. You may also call toll-free
1-800-827-4000 to have tax forms mailed to you or to ask technical
questions.
Application for Net Operating Loss Refund Instructions
MI-1045, Page 4
What is a net operating loss?
A net operating loss (NOL) occurs when a business has losses in
excess of its gains. The Michigan NOL deduction (NOLD) is subject
to allocation and apportionment as required by the Michigan Income
Tax Act. Income and losses attributed to other states, and income
and losses from oil and gas production included in the federal NOL
must be eliminated from the Michigan NOL calculation in the loss
year. The Michigan NOL may be carried back in the same manner
as prescribed in Section 172 of the Internal Revenue Code as in
effect for the year the loss was incurred. If your NOL is not
exhausted in the carryback years, or you elect to forego the carryback,
an NOL carryforward will exist for subsequent years. The carryover
period is limited to 15 years for loss years before 1998. Beginning
with the 1998 tax year, the carryback period is generally limited to
two years for both federal and Michigan taxes, and any unused loss
may be carried forward 20 years. For tax years ending in 2001 and
2002, a 5 year carryback period will apply to most taxpayers.
Exceptions to the general carryback periods for federal purposes
also apply to Michigan.
The Michigan NOL
The Michigan Court of Appeals has ruled in two separate cases,
Preston v Treasury, 190 Mich App 491; 476 NW 2d 455, (1991) and
Beznos v Treasury, 224 Mich App 717; 569 NW 2d 908 (1997), that
the Michigan NOL and NOLD are computed separately and
independently of the federal NOL and NOLD. If you incurred a
federal NOL that you are carrying back to previous years, you must
determine the allowed Michigan NOL, if any, by completing page 1
of the MI-1045. If you incurred a Michigan NOL, but are electing to
forego the carryback, and carry the Michigan NOL forward, you do
not need to file this form until the year you actually use the loss to
offset Michigan income. If you incurred an NOL from Michigan
sources, but did not incur a corresponding federal NOL, you must
complete page 1 of the MI-1045 form, to determine your allowable
Michigan NOL.
When to file your MI-1045
If you are carrying back your NOL to prior years, the MI-1045 form
must be filed within four years after the date set for filing the return
in which the NOL was incurred. For example: If the original NOL
was incurred in 2003, then the original 2003 return was due April
15, 2004. You must file the MI-1045 form by April 15, 2008, to
carryback the 2003 Michigan NOL to a year that is otherwise
outside of the general 4 year statute of limitations.
If your Michigan NOL is carried forward, the MI-1045 form should be
filed in the year it is carried forward to.
How to use the MI-1045 form
Use page 1 of the MI-1045 form to calculate your Michigan NOL for
the year of the loss. If you are carrying the loss back, you must also
complete page 2, Redetermining Your Michigan Income Tax. Page 3
is used to determine the amount of your federal NOLD that may be
used to compute your household income.
NOTE: The Michigan NOL is generally carried back 2 years. Any remaining unused loss after the carryback period may then be carried forward
for 20 years. Certain exceptions to the general 2 year carryback period that apply to federal NOLs (e.g. certain casualty or farm losses) also apply
to Michigan NOLs. See the U.S. 1045 instructions for exceptions to the general carryback rules for federal NOLs.
