If you used Schedule J to figure your tax for 2006 (that is, you entered the amount from the 2006 Schedule J, line 22, on your 2006 Form 1040, line 44, 2006 Form 1040NR, line 41, or on Form 1040X), enter on line 13 the amount from your 2006 Schedule J, line 3.
If you did not use Schedule J to figure your tax for 2006, enter on line 13 the taxable income from your 2006 tax return (or as previously adjusted by the IRS or corrected on an amended return). But if that amount is zero or less, complete the worksheet below to figure the amount to enter on line 13.
If you did not file a tax return for 2006, use the amount you would have reported as your taxable income had you been required to file a tax return. Be sure to keep all your records for 2006 until at least 3 years after April 15, 2008 (or the date you file your 2007 tax return, if later).
Any net capital loss deduction on your 2006 Schedule D, line 21, is not allowed for income averaging purposes to the extent it did not reduce your capital loss carryover to 2007. This could happen if the taxable income before subtracting exemptions—shown on your 2006 Form 1040, line 41 (or as previously adjusted)—was less than zero. Enter the amount by which your 2006 capital loss carryover to 2007 (the sum of your short- and long-term capital loss carryovers) exceeds the excess of the loss on your 2006 Schedule D, line 16, over the loss on your 2006 Schedule D, line 21.
If you had an NOL for 2006, enter the amount of that NOL from line 25 of the 2006 Form 1045, Schedule A, you filed with Form 1045 or Form 1040X. If you did not have an NOL for 2006, enter the portion, if any, of the NOL carryovers and carrybacks to 2006 that were not used in 2006 and were carried to years after 2006.
John Farmington did not use income averaging for 2004, 2005, or 2006. The taxable income before subtracting exemptions on his 2006 Form 1040, line 41, is a negative $1,000. This amount includes an NOL deduction on his 2006 Form 1040, line 21, of $1,950. The $1,950 is the portion of the 2005 NOL that was remaining from 2004 to be carried to 2006. See the examples on pages J-2 and J-5. A deduction for exemptions of $3,300 is shown on Form 1040, line 42, and line 43, taxable income, is limited to zero. John does not have an NOL for 2006. John subtracts from the $1,000 negative amount on Form 1040, line 41, the $3,300 deduction for exemptions. The result is a negative $4,300, John's 2006 taxable income, which he enters as a positive amount on line 1 of the 2006 worksheet.
When John filed his 2006 tax return, he had a $3,000 net capital loss deduction on Schedule D, line 21 (which was also entered on Form 1040, line 13), a $7,000 loss on Schedule D, line 16, and a $5,000 capital loss carryover to 2007 (his 2006 capital loss carryover to 2007 was $5,000, not $4,000, because the amount on his Form 1040, line 41, was a negative $1,000). John adds the $3,000 from Schedule D, line 21, and the $5,000 carryover. He subtracts from the $8,000 result the $7,000 loss on his Schedule D, line 16, and enters $1,000 on line 2 of the worksheet.
John enters -0- on line 3 of the worksheet because he does not have an NOL for 2006 and did not have an NOL carryover from 2006 available to carry to 2007 and later years. The NOL deduction for 2006 of $1,950 was reduced to zero because it did not exceed his modified taxable income of $3,950. Modified taxable income is figured by adding back the $3,000 net capital loss deduction and the $3,300 of exemptions to negative taxable income (figured without regard to the NOL deduction) of $2,350. John enters $1,000 on line 4 and $3,300 on line 5. He enters $3,300 as a negative amount on Schedule J, line 13. He enters $6,000 on Schedule J, line 14, and $2,700 on Schedule J, line 15. If he uses Schedule J to figure his tax for 2008, he will enter $2,700 on his 2008 Schedule J as his 2006 taxable income for income averaging purposes.
taxmap/instr/i1040sj-008.htm#w25514j08
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2006 Taxable Income Worksheet—Line 13 | Complete this worksheet if your 2006 taxable income is zero or less. See the instructions above before completing this worksheet. | | 1. | Figure the taxable income from your 2006 tax return (or as previously adjusted) without limiting it to zero. If you had an NOL for 2006, do not include any NOL carryovers or carrybacks to 2006. Enter the result as a positive amount | 1. | | | | 2. | If there is a loss on your 2006 Schedule D, line 21, add that loss (as a positive amount) and your 2006 capital loss carryover to 2007. Subtract from that sum the amount of the loss on your 2006 Schedule D, line 16, and enter the result | 2. | | | | | | 3. | If you had an NOL for 2006, enter it as a positive amount. Otherwise, enter as a positive amount the portion, if any, of the NOL carryovers and carrybacks to 2006 that were not used in 2006 and were carried to years after 2006 | 3. | | | | | | 4. | Add lines 2 and 3 | 4. | | | | 5. | Subtract line 4 from line 1. Enter the result as a negative amount on Schedule J, line 13 | 5. | | | | | | | | | | | |
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