Common questions about Net Operating Losses(NOLs), Form 172 and diagnostic ref 61199 in Lacerte

For tax year 2024 the IRS is released Form 172 to show the calculation of Net Operating Losses for Individuals, Estates and Trusts. Part I will generate automatically along with the NOL Worksheets and shows current year NOL information. Part II is only required if doing an NOL Carryback.

Table of contents:

Form 172 for individual returns for tax year 2024

Starting in Lacerte 2024 a Form 172 page 1 will also generate for applicable returns. This form generates automatically and requires no manual entries. To make adjustments to the 172 page 1 use the NOL Worksheet.

To view Page 1 for current year NOL:

1. From the Forms Tab select State - US.
2. Select Form 172.
3. The current year NOL will show on line 24.
4. If any adjustments are needed use Screen 15 Net Operating Loss Deduction and the Current Year NOL/Misc section.

Form 172 Page 2 is required for tax returns that have a farming loss resulting in a NOL Carryback and is used to calculate the amount of carryover remaining. This will generate diagnostic ref. 61199 Manually prepare and attach as a PDF attachment a prior year Form 172 for each NOL deduction that originate in prior years.

1. Go to Screen 15 Net Operating Loss Deduction.
2. Select the Prior Year Form 172 section.
3. From the Sections list select the Form 172 Part II - NOL Carryover section.
4. In the 2nd preceding tax year put the earliest carryback period information.
5. In the 1st preceding tax year information section put the next tax period.
6. This will generate the 172 page 2. If more then two tax years are needed you'll need to manually attach the prior year NOL Worksheets (From the prior year Lacerte returns) to the current year e-file rules since the Form 172 does not exist in prior years. This will satisfy the requirements of Diagnostic ref 61199

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Resolving diagnostic ref 61199

If you have more then one copy of the 172 page 2 you'll need to add the additional NOL Worksheets as PDF attachments

1. If more then two tax years are needed you'll need to manually attach the prior year NOL Worksheets (From the prior year Lacerte returns) to the current year e-file rules since the Form 172 does not exist in prior years. This will satisfy the requirements of Diagnostic ref 61199
2. Open the prior year program.
3. Open this client to the Forms tab.
4. Select the NOL wkshts
5. Select the Print Form button in the upper right.
6. Choose the applicable option to print the calculation page of the NOL Worksheet.
7. Select the Settings button
8. Uncheck Printer and select File (PDF)
9. Select Ok to save the Settings.
10. Select OK to print the worksheet to pdf.
11. Enter a name for the PDF and where you want to save the file.
12. Repeat steps 2-11 for each tax year needed.
13. In the 2024 Lacerte go to screen 4.4 e-file Miscellaneous.
14. Select the PDF Attachment button.
15. Select Attach PDF.
16. Browse to the PDF you need to attach and select OK.
17. Under Link to Form select Form 172.
18. Repeat steps 14-17 for each additional tax year.

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Why is Form 6251 generating after I enter a NOL carryover for a 1040?

Screen 15, Net Operating Loss has inputs labeled "Carryover Available in 2024" and "AMT Carryover Available in 2024". Lacerte calculates the difference between the regular and AMT carryover and can make an adjustment to form 6251 for that difference. If an entry is made in one field but not the other, Lacerte may interpret that as a difference. That difference can trigger AMT incorrectly. Here are the steps to check the correct entries are present:

1. Go to Screen 15, Net Operating Loss.
2. Verify both of these fields have an entry for every carryover year entered:
   • Carryover available in 2024
   • AMT carryover available in 2024

Form 6251 will automatically generate when the taxpayer is subject to Alternative Minimum Tax. Lacerte doesn't populate statements for the adjustment lines of form 6251 unless the form is generated as part of the return. If you wish to see additional details for the form you can force it to generate as part of the return. To force the Form 6251 to generate:

1. Go to Screen 40, Alternative Minimum Tax (6251).
2. Enter 1 in the field 1=force Form 6251, 2=when applicable [O].

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Suppress Net Operating Loss (NOL) carryover in the current year

To prevent the Net Operating Loss (NOL) available in the current tax year from appearing on Schedule 1 (Form 1040, 1040SR), line 8, the amount in Carryover available in 2024 must be removed.

1. Navigate to Screen 15, Net Operating Loss Deduction.
2. Remove amount in field Carryover available in 2024.

Removing the amount will also remove the NOL carryover from the Carryovers section on the General Information form in the Forms view, the NOL Worksheet, and will not proforma to the proceeding tax year.

Note: If the return contains other carryovers or Net Operating Loss, these items will still appear under Carryovers to 2024 on the General Information form and the NOL Worksheet respectfully.

To take advantage of the loss in the following year, it will be necessary to enter the NOL on Screen 15, Net Operating Loss in the next year of Lacerte.

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Entering an NOL carryforward not subject to 90% AMTI Limitation

The program limits a Net Operating Loss (NOL) carryforward to 90% of Alternative Minimum Taxable Income (AMTI) by default.

The following losses are not subject to this limitation:

• Qualified disaster losses
• Qualified Gulf Opportunity Zone losses
• Qualified recovery assistance losses
• Qualified disaster recovery assistance losses
• 2008 and 2009 losses for which the corporation made the election under IRC Section 172(b)(1)(H).

To override the program's calculation;

1. Go to Screen  40, Alternate Minimum Tax
2. Enter the ATNOLD limitation[O]

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Form 1041, line 23 is a negative number, but no NOL appears on General Information as a carryover

An NOL is only generated when there is a Business loss, such as Schedule C, nonpassive Schedule E, or nonpassive Schedule K-1 activity.

If Form 1041, line 23 is a Taxable loss because Total deductions on line 22 are greater than Total income on line 9, there will be no carryover of the amount on line 23.

However, the amount of loss from the Schedule C or E, etc. will appear in General Information as a carryover to the next year.

If line 23 is negative, then the NOL worksheet will be generated to compute an NOL for the trust or estate. This is true even if all activities on the return are passive.

Note: If the Taxable loss occurs is the final year, Lacerte will pass out these excess deductions to the beneficiaries on their Schedule K-1's in Box 11 as code A.

• NOL carryovers from activities such as Schedule C or E should be entered in Screen 33,Miscellaneous Deductions & NOL.
  • Under the Net Operating Loss section, in Regular Tax, enter any federal net operating loss carryover as a positive number.
  • The amount entered is included on Form 1041, line 15a as a negative number and is also carried to Schedule I, line 7 when required.
• You must manually prepare and attach a statement showing how the amount was calculated.
  • This statement may be input through the Screen 51 Notes and printed with the tax return.
• In Alternative minimum tax, enter any net operating loss carryover for AMT purposes as a positive number. The amount entered is included on Schedule I, line 24.
• General information will only indicate there is an NOL carryover if the NOL is calculated in the current year.  It will not show an unused carryover, but the unused carryover will proforma.
• NOL's can be distributed to the beneficiaries in the final year of the estate or trust. 

Note: The input for NOL carryovers is different than Prior Year Passive Activity Losses.  Prior year passive losses are entered in the same screen as the passive activity to which they belong.

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When does Lacerte convert charitable contribution carryover to NOL?

Based on IRC Section 170, Title 26

In the Corporate module, charitable contribution carryovers convert to NOL carryovers when a return has both a NOL carryover from a prior year, what would have been (and maybe still is) a charitable contribution carryover to next year, and taxable income before NOL less than the amount of NOL carryover.

A simple example involving only 4 entries:  

• Gross receipts of $100,000
• Accounting expense of $70,000
• NOL carryover from 2007 of $45,000
• Contribution carryover from 2007 of $10,000 (or a current year contribution of $10,000)  

Note that taxable income before NOL or CC deduction is $30,000 (current year income), less than the NOL carryover of 45,000, which is important. If all of the NOL carryover is utilized in offsetting the taxable income, no NOL carryover to next year will exist and no contribution carryovers will be converted to NOL carryover.

In the Forms View:

1. Note that on Form 1120, page 1, no charitable contribution deduction is allowed and that taxable income on line 30 is zero, and see that taxable income is 0. It looks like $30,000 of NOL carryover was used to decrease taxable income to zero, and that we would have a NOL carryover of $15,000. Since no contribution deduction was allowed, it would seem that the contribution carryover to next year would be $10,000.  
2. Go to NOL Wkshts, which shows the NOL carryover calculation when NOL carryovers and charitable contributions are involved. As a result of the modified taxable income computation, this worksheet shows us that $27,000, not $30,000, of the NOL carryover was absorbed this year and that the NOL carryover is $18,000 instead of $15,000 ($3,000 more than expected).  
3. Go to Worksheets and review the 'Computation of Contribution Carryover to 2009.' The contribution carryover is calculated to $7,000 rather than $10,000.  

Both of these carryover amounts are listed in the 'Carryovers to YYYY' of General Info.

In the end, based on the calculation contained on the NOL Wkshts, the NOL carryover has been increased by $3,000 and the contribution carryover reduced by $3,000.

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