Section 45IAC3.1-1-6. Net operating loss deduction for individuals

   Net Operating Loss for Individuals. The following provisions pertain to the use of a Federal net operating loss deduction as it applies to an individual subject to the Indiana Adjusted Gross Income Tax Act. The amount of the net operating loss that may be carried back and forward for Indiana income tax purposes shall be that portion of the Federal net operating loss allocated to Indiana for the taxable year the operating loss is sustained.

  The amount of the Indiana loss to be carried back and forward will be the Federal net operating loss after:

  (1) All modifications required under IC 6-3-1-3.5 applicable to the net loss in the year the loss was incurred; and

  (2) Apportionment as to the source in the case of nonresident individuals in the same manner that income for such nonresident individuals is required to be apportioned.

  The net operating loss of an individual is computed in the same manner as the Adjusted Gross Income is computed for Indiana tax purposes except that:

  (1) No operating loss deduction from a prior or succeeding year can be used in computing a current operating loss.

  (2) Captial [sic.] losses are allowed only to the extent of the captial [sic.] gain. Nonbusiness captial [sic.] losses cannot exceed nonbusiness capital gain even though you have an excess of business capital gains over business capital losses.

  (3) In the event that the net operating loss carried back or carried forward exceeds the taxable adjusted gross income of the year to which it is carried, the 50% capital gain deduction for the excess of net long term capital gain over net short term capital loss cannot be considered.

  (4) Personal exemptions and exemptions for dependents cannot be claimed when computing the loss.

  (5) Nonbusiness deductions may not be used─those deductions used in lieu of the standard deduction for Federal tax purposes. Nonbusiness deductions for Indiana include a self-employed individual's contributions on his own behalf to a retirement plan under which he is covered. This amount of contribution must be deducted from dividends, interest and other miscellaneous income. Generally, other nonbusiness expenses (itemized deductions) cannot be used to offset nonbusiness income in determining the Indiana net operating loss.

  Example 1 will present calculations used in determining the carryback and carryforward of losses for Indiana Adjusted Gross Income Tax purposes. See Example 1.

  In applying for refund as a result of a net operating loss, the loss must be fully explained on an attached schedule. Federal Schedule 1045 may be used as a supporting document; however, all modifications required in determining Indiana adjusted gross income must be contained in the schedule. Adjustments also must be made for credit for the elderly (retirement income credit if applicable), and credit for taxes paid to other states where applicable.

EXAMPLE 1
NET OPERATING LOSS
		1973		1974		1975		1976		1977
Salaries		5,000.00		5,000.00		2,000.00		8,000.00		2,000.00
Interest less U.S. Govt. Bd. Interest		300.00		200.00		400.00		700.00		500.00
Schedule C─Income (Loss)		8,000.00		4,000.00		9,000.00		(20,000.00)		(35,000.00)
Schedule F─Income (Loss)		3,000.00		3,000.00		2,000.00		( 1,500.00)		(10,000.00)
Tax Add Back		1,200.00		2,300.00		1,800.00		2,500.00		3,000.00
Schedule D─Net nonbusiness Long Term Capital Gain (Loss) Before 50% Exclusion		3,000.00		( 1,000.00)						6,000.00
Business Net Capital Gain or (Loss)		( 4,000.00)		1,000.00		2,000.00		3,000.00		( 7,000.00)
50% Capital Gain Deduction		( 1,500.00)		─		( 1,000.00)		( 1,500.00)		( 3,000.00)
Self-employed Retirement Plan (a) (Reduces nonbusiness Income)		(  200.00)		(   200.00)		(   200.00)		(   200.00)		(   300.00)
Adjusted Gross Income per IT-40		14,800.00		14,300.00		16,000.00		( 9,000.00)		(43,800.00)
Adjustments in computing net operating loss (loss year only) Add back 50% capital gain deduction								1,500.00		3,000.00
Adjusted gross income to be considered in absorbing Individual's Net Operating Loss		14,800.00		14,300.00		16,000.00		( 7,500.00)		(40,800.00)
Net Operating Loss Deduction
1976 carryback to 1973		( 7,500.00)	(b)
1977 carryback to 1974				(40,800.00)	(c)
1977 carryback to 1975─Note 1						(25,500.00)	(d)
Adjusted gross income after carryback		7,300.00		-0-		-0-		-0-		-0-
Note 1: Carryover of 1977 loss to 1975 Adjusted gross income per 1974 return		$14,300.00		Note 2: Carryover to 1978 Adjusted gross income per 1975 return						$16,000.00
Add nonbusiness capital loss		1,000.00		Add 50% Capital Gain Deduction						1,000.00
		15,300.00								17,000.00
1977 loss		(40,800.00)		Carryover from 1974─Note 1						(25,500.00)
Carryover to 1975		(25,500.00)		Carryover to 1978						( 8,500.00)
Key:(a) This amount must be used to reduce nonbusiness type income─interest, dividends, etc.
(b) The amount to be carried to the 1973 Amended Return and reported as other losses.
(c) Carry to 1974 Amended Return
(d) Carry to 1975 Amended Return

(Department of State Revenue; Reg 6-3-1-3.5(a)(060); filed Oct 15, 1979, 11:15 am: 2 IR 1515; errata, 2 IR 1743)