Net Operating Losses

For individuals, Minnesota has generally followed the federal rules for NOLs. There is no separate state calculation to claim an NOL carryback. Instead, you file an amended Minnesota return based on your updated federal return.

In 2010, Minnesota did not adopt the five-year NOL carryback provision of the federal Worker, Homeownership, and Business Assistance Act of 2009. If you choose this federal option, you are limited on your Minnesota return to a carryback period of two years preceding the loss. You may carry forward your unused part of the loss up to 20 years.

If you carry back an NOL on your federal return, Minnesota allows a two-year carryback period. Minnesota has no separate form for NOL carrybacks. If you amend your federal return to carry back an NOL (with federal Form 1040X or Form 1045), you must amend your Minnesota return using Form M1X, Amended Minnesota Income Tax.

To claim a loss for a year you were a part-year resident or nonresident, you must amend your Minnesota return and recompute that year’s Schedule M1NR, Nonresidents/Part-Year Residents.

If you carry forward an NOL on your federal return, Minnesota allows a 20-year carry forward period. Your federal NOL carryforward flows through to your Minnesota return without any additional calculations.

You may apply the excess NOL to the next eligible year on your federal return. However, Minnesota does not have a similar carryover provision at the state level. As a result, you may lose some of the tax benefit from an NOL on your state return. This scenario can occur when adjustments on your return reduce your Minnesota taxable income. See the carryback example below:

Carryback Example

Cliff had federal taxable income of $20,000 in 2016. In tax year 2017, Cliff carries back a $20,000 NOL, reducing his 2017 federal taxable income to zero. However, Cliff had a subtraction on his 2016 Minnesota return for $5,000 of U.S. savings bond interest, so his state taxable income was only $15,000 in 2016.

The NOL carryback of $20,000 reduces Cliff's 2016 state taxable income to a negative $5,000. Cliff may not carry over that $5,000 to a different year on his Minnesota return. Therefore, he does not get any state tax benefit from that part of the original NOL.

Normally, the statute of limitations for filing a claim for a refund is 3½ years from the due date of the return. However, the claim period is longer if the refund is due to a NOL carryback. You may claim a refund up to 45½ months after the end of the tax year when the NOL occurred. For more information, see Minnesota Statute 290.095 and the refund claim example below.

Refund Claim Example

Jabar has an NOL in 2016 and plans to carry it back to his 2014 return. Normally, he would have until October 15, 2018, to amend his 2014 return and claim a refund. However, since Jabar’s refund claim in based on an NOL carryback, he has until October 15, 2020 (or 45½ months after December 31, 2016).

This table and the examples explain how your Minnesota residency affects your NOLs.

Residency Example 1

Denise was a California resident in 2017. She generated an NOL in 2017 and elected to carry it forward. She moved to Minnesota late in 2017 and was a full-year resident of Minnesota in 2018. Her 2018 federal tax return will include the 2017 NOL carryover, and the benefit will flow to her Minnesota return.

Residency Example 2

Theo was a Minnesota resident during 2017 and moved to California in 2018. He incurred an NOL in 2018 and carried it back to his 2017 federal return. Theo should amend his 2017 Minnesota return to claim a refund and report changes to federal taxable income because of his NOL.

Residency Example 3

Jade was an Iowa resident. She moved to Minnesota in 2017. She incurred an NOL in 2017 and carried it back to her 2015 and 2016 returns. Because she did not file Minnesota returns in 2015 or 2016, she receives no Minnesota benefit. Jade could elect to carry forward the losses on her federal return if she wants a Minnesota benefit.

Residency Example 4

Claire is an Iowa resident with the following income:

Although Claire has a loss from Minnesota activities, there is no NOL on her federal return for the year. As a result, she cannot use the loss for Minnesota purposes. Since there is no federal loss for that year, Claire is not allowed to carry the partnership’s loss to other years on her Minnesota return.

You may not use NOL carryovers when computing household income for the state K-12 Education Credit and the Homestead Credit Refund (for Homeowners) and Renter’s Property Tax Refund. You must add back any NOL carryovers when calculating household income for these credits. You do not need to recalculate these credits when you carry back NOLs to a previous year.

NOL carryovers reduce federal adjusted gross income. If you carry back an NOL, you must amend the following related items on your Minnesota return:

• Schedule M1WFC, Working Family Credit
• Schedule M1R, Age 65 or Older/Disabled Subtraction
• Schedule M1CR, Credit for Income Tax Paid to Another State
• Schedule M1MT, Alternative Minimum Tax
• Schedule M1NR, Nonresidents/Part-Year Residents
• Schedule M1RCR, Credit for Tax Paid to Wisconsin

In the year you claim the bonus depreciation on your federal return, you must add back 80 percent to your Minnesota return as normal. However, you must reduce the bonus depreciation subtraction you claim over the next five years by the NOL amount. To make this calculation, use the worksheet in the instructions for Schedule M1M. For more information, see the example below.

Bonus Depreciation Example

Carlotta, a sole proprietor, purchased an asset for her business and claimed federal bonus depreciation of $30,000 in 2017. Purchasing the asset resulted in an NOL of $20,000. She carried the loss back to 2016 and amended both her federal and Minnesota return accordingly.

Carlotta calculates her bonus depreciation addition and future subtraction as follows:

2015 Bonus Depreciation Addition: $24,000 (as calculated below)

• Step 1 – Bonus depreciation claimed on federal return: $30,000
• Step 2 – Multiply step 1 by 0.80 for bonus depreciation addition: $24,000

2016 (and future years) Bonus Depreciation Subtraction: $800 per year (as calculated below)

• Step 1 – 2015 bonus depreciation addition: $24,000
• Step 2 – 2015 NOL carryover (enter as a positive amount): $20,000
• Step 3 – Subtract step 2 from step 1: $4,000
• Step 4 – Multiply step 3 by 0.20 for bonus depreciation subtraction: $800