Question

When a net operating loss is carried forward, it can affect the medical expense deduction of that year.

True

False

Answer 1

True.

To refigure your total tax liability for a carryback year, first refigure your AGI for that year. (On Form 1045, use lines 10 and 11 and the "After carryback" column for the applicable carryback year.) Use your AGI after applying the NOL deduction to refigure income or deduction items that are based on, or limited to, a percentage of your AGI. Refigure the following items.

1. The special allowance for passive activity losses from rental real estate activities.

2. Taxable social security and tier 1 railroad retirement benefits.

3. IRA deductions.

4. Excludable savings bond interest.

5. Excludable employer-provided adoption benefits.

6. The student loan interest deduction.

7. The tuition and fees deduction.

If more than one of these items apply, refigure them in the order listed above, using your AGI after applying the NOL deduction and any previous item. (If you are using Form 1045, enter your NOL deduction on line 10. On line 11, using the "After carryback" column, enter your AGI refigured after applying the NOL deduction and after refiguring any above items.)

Next, refigure your taxable income. (On Form 1045, use lines 12 through 15 and the "After carryback" column.) Use your refigured AGI (Form 1045, line 11, using the "After carryback" column) to refigure certain deductions and other items that are based on or limited to a percentage of your AGI. Refigure the following items.

• The itemized deduction for medical expenses.

• The itemized deduction for qualified mortgage insurance premiums.

• The itemized deduction for casualty losses.

• Miscellaneous itemized deductions subject to the 2% limit.

• The overall limit on itemized deductions.

• The phaseout of the deduction for exemptions.