Line 13(p11)

If you used Schedule J to figure your tax for 2009 (that is, you entered the amount from the 2009 Schedule J, line 23, on line 44 of your 2009 Form 1040, on line 41 of your 2009 Form 1040NR, or on Form 1040X for 2009), enter on line 13 the amount from your 2009 Schedule J, line 3.

If you did not use Schedule J to figure your tax for 2009, enter on line 13 the taxable income from your 2009 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 2009, 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 2009 until at least 3 years after April 18, 2011 (or the date you file your 2010 tax return, if later).

Any net capital loss deduction on your 2009 Schedule D, line 21, is not allowed for income averaging purposes to the extent it did not reduce your capital loss carryover to 2010. This could happen if the taxable income before subtracting exemptions—shown on your 2009 Form 1040, line 41, or your 2009 Form 1040NR, line 38 (or as previously adjusted)—was less than zero. Enter on line 2 the amount by which your 2009 capital loss carryover to 2010 (the sum of your short- and long-term capital loss carryovers) exceeds the excess of the loss on your 2009 Schedule D, line 16, over the loss on your 2009 Schedule D, line 21.

If you had an NOL for 2009, enter the amount of that NOL from line 25 of the 2009 Form 1045, Schedule A, you filed with Form 1045 or Form 1040X. If you did not have an NOL for 2009, enter the portion, if any, of the NOL carryovers and carrybacks to 2009 that were not used in 2009 and were carried to years after 2009.

John Farmington did not use income averaging for 2007, 2008, or 2009. The taxable income before subtracting exemptions on his 2009 Form 1040, line 41, is a negative $1,000. This amount includes an NOL deduction on his 2009 Form 1040, line 21, of $1,750. The $1,750 is the portion of the 2008 NOL that was remaining from 2007 to be carried to 2009. See the examples on pages J-2 and J-7. A deduction for exemptions of $3,650 is shown on Form 1040, line 42, and line 43, taxable income, is limited to zero. John does not have an NOL for 2009. John subtracts from the $1,000 negative amount on Form 1040, line 41, the $3,650 deduction for exemptions. The result is a negative $4,650, John's 2009 taxable income, which he enters as a positive amount on line 1 of the 2009 Taxable Income Worksheet.

When John filed his 2009 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 2010 (his 2009 capital loss carryover to 2010 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 2009 and did not have an NOL carryover from 2009 available to carry to 2010 and later years. The NOL deduction for 2009 of $1,750 was reduced to zero because it did not exceed his modified taxable income of $3,750. Modified taxable income is figured by adding back the $3,000 net capital loss deduction and the $3,650 exemption deduction to negative taxable income (figured without regard to the NOL deduction) of $2,900. John enters $1,000 on line 4 and $3,650 on line 5. He enters $3,650 as a negative amount on Schedule J, line 13. He enters $6,000 on Schedule J, line 14, and $2,350 on Schedule J, line 15. If he uses Schedule J to figure his tax for 2011, he will enter $2,350 on his 2011 Schedule J as his 2009 taxable income for income averaging purposes.