Michigan Application for Michigan Net Operating Loss Refund

Application for Michigan Net Operating Loss Refund
2023 Application for Michigan Net Operating Loss Refund MI-1045
Reset Form
Michigan Department of Treasury (Rev. 05-23)

Issued under authority of Public Act 281 of 1967, as amended.

MICHIGAN Net Operating Loss Schedule MI-1045

Attachment 29

Type or print in blue or black ink.

Year (YYYY)

For loss year
Filer’s First Name

If a Joint Return, Spouse’s First Name

1.

Month-Year (MM-YYYY)

or for loss year beginning

Month-Year (MM-YYYY)

and ending

M.I.

Last Name

Filer’s Full Social Security No. (Example: 123-45-6789)

M.I.

Last Name

Spouse’s Full Social Security No. (Example: 123-45-6789)

Check the box to forgo the entire carryback period for the farming NOL. When you check the box, you are electing to carry
the farming NOL forward instead of carrying it back to previous years. Once the election is made, it is irrevocable.

PART 1: COMPUTE THE NET OPERATING LOSS (NOL)

2. Adjusted Gross Income (AGI). Enter the amount from MI-1040, line 10 of the loss year .................. 2.
Additions. Enter the corresponding amounts from Schedule 1.
3. Gains from Michigan column of MI-1040D and MI-4797 from Schedule 1,
line 3 .............................................................................................................. 3.
00
4. Losses attributable to other states from Schedule 1, line 4.......................... 4.
00
5. Net loss from federal column of your Michigan MI-1040D or MI-4797 from
Schedule 1, line 5 .......................................................................................... 5.
00
6. Oil, gas, and nonferrous metallic mineral expenses (Michigan sourced)
deducted to arrive at AGI from Schedule 1, line 6 ......................................... 6.
00
7. Federal net operating loss deduction included in AGI from Schedule 1, line 7. 7.
00
8. Total. Add lines 3 through 7 .................................................................................................................
8.
Subtractions. Enter the corresponding amounts from Schedule 1.
9. Gains from federal column of Michigan MI-1040D and MI-4797 from
Schedule 1, line 12 ..................................................................................... 9.
00
00
10. Income attributable to another state from Schedule 1, line 13 ..................... 10.
11. Oil, gas, and nonferrous metallic minerals income (Michigan sourced)
included in AGI from Schedule 1, line 19 ........................................................ 11.
00
12. Miscellaneous subtractions from Schedule 1, line 23 (see instructions) ...... 12.
00
13. Total. Add lines 9 through 12. Enter as a negative number .................................................................. 13.
14. Michigan NOL before required modifications. Combine lines 2, 8, and 13. If zero or greater, STOP; you
do not have a Michigan NOL..................................................................................................................... 14.
Modifications. Complete Part 2 before continuing.
00
15. Excess nonbusiness deductions from line 30....................................................... 15.
16. Excess capital loss (see instructions). Enter as a positive number ............. 16.
00
00
17. Michigan sourced adjustments (see instructions)........................................ 17.
18. Total Modifications. Add lines 15 through 17 ..................................................................................... 18.

00

19. Michigan NOL. Combine lines 14 and 18. If zero or greater, you do not have a Michigan NOL.................. 19.

00

PART 2: EXCESS NONBUSINESS DEDUCTIONS

Michigan-sourced Nonbusiness Deductions
20. Payments to a retirement plan as an individual or self-employed person ..... 20.
21. Alimony deducted and/or penalty for early withdrawal of savings ................. 21.
22. Other adjustments to income......................................................................... 22.
23. Subtotal. Add lines 20 through 22.................................................................. 23.
Michigan-sourced Nonbusiness Income
24. Interest income .............................................................................................. 24.
25. Dividend income ............................................................................................ 25.
26. Net nonbusiness capital gains (before any allowable exclusion) .................. 26.
27. Pension, IRA and annuities ........................................................................... 27.
28. Taxable alimony and other income ................................................................ 28.
29. Subtotal. Add lines 24 through 28.................................................................. 29.
30. Excess nonbusiness deductions. Subtract line 29 from line 23. If line 29
is greater than line 23, enter “0”. Enter here and carry to line 15 .................. 30.

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2023 Schedule MI-1045, Page 2

Instructions for Michigan Net Operating Loss Schedule (Schedule MI-1045)

Purpose
Michigan Net Operating Loss Schedule (Schedule
MI-1045) is used to compute the Michigan net operating
loss (NOL) and is now filed with the loss year return
(including e-filed returns).
Michigan Net Operating Loss Deduction (Form 5674) is
used to compute the current year Michigan NOL deduction.
Form 5674 is required to claim an NOL deduction on
Schedule 1.
Michigan Net Operating Loss Carryforward deduction
is claimed on Michigan Schedule 1. A completed Schedule
MI-1045 for the loss year(s) and Form 5674 are required
before an NOL carryforward deduction can be claimed.
Michigan Farming Loss Carryback Refund Request
(Form 5603), is used to claim a refund from a farming loss
carryback.
Federal Tax Cuts and Jobs Act of 2017
The federal Tax Cuts and Jobs Act (TCJA) of 2017 limits
business losses that are included in adjusted gross income
(AGI) for 2021 and future tax years. The limitation is
computed by aggregating business income and business
losses. If the computation results in a loss, the Internal
Revenue Code (IRC) 461(l) limits business losses in
excess of business income. The limitation is adjusted for
inflation each year. Losses in excess of the limitation are
not included in AGI and become an NOL available to claim
in the following year computed on the Michigan Excess
Business Loss Form MI-461.
Federal CARES Act of 2020
For tax years 2018, 2019, and 2020 the federal Coronavirus
Aid, Relief, and Economic Security Act (CARES Act)
replaced many of the provisions of the federal TCJA. The
2020 Schedule MI-1045 accommodates the changes set by
the CARES Act and should be used if you are claiming a
loss created in 2018, 2019 or 2020.
Terminology
Due to the federal TCJA, limitations were imposed on
NOL deductions for losses incurred in 2018 and future tax
years. This created two groups of NOLs. For Michigan
forms and instructions these are identified as Group 1
NOLs and Group 2 NOLs. Group 2 NOLs are further
divided into two subcategories as Group 2 CARES and
Group 2 TCJA.
• Group 1 NOLs are those created in 2017 and prior.
• Group 2 NOLs:
• Group 2 CARES NOLs are those created in 2018,
2019 and 2020. The carryforward of these NOL
deductions are limited to 80 percent of Michigan
taxable income before exemptions and previously
claimed NOL deductions beginning in tax year
2021.

Group 2 TCJA NOLs are those created in 2021
and future tax years. These NOL deductions are
limited to 80 percent of Michigan taxable income
before exemptions and previously claimed NOL
deductions.
The TCJA eliminates most NOL carrybacks for NOLs
incurred in tax years after 2020 and allows the NOL to
be carried forward indefinitely until fully absorbed. A
two-year carryback is available for farming NOLs.
What is a Net Operating Loss?
An NOL occurs when business loss exceeds income
in a particular year. In general terms, a federal NOL is
computed by starting with federal taxable income and
making the following modifications by eliminating:
• Capital losses in excess of capital gains and
any excluded capital gains. The excess capital
loss deduction is calculated on a U.S. Form 1045
Schedule A, line 21 or 22. An excess capital loss
includes a U.S. Form Schedule D loss that is limited to
$3,000. The capital loss may be greater than $3,000 if
nonbusiness capital losses were offset by business gains
that are also reported on U.S. Form Schedule D.
•

Example: U.S. Form 1045, Schedule A, line 22
computed a $15,000 excess capital loss. The $15,000
excess capital loss cannot be used to increase the NOL.
•
•

NOL carryovers from other years
Excess of nonbusiness deductions over nonbusiness
income
Example: $10,000 nonbusiness stock loss and $50,000
gain from the sale of a business asset (U.S. Form 4797)
produce a U.S. Form Schedule D gain of $40,000. The
$10,000 stock loss is nonbusiness and cannot be used to
increase an NOL.
If the end result is negative, a federal NOL has been
created for use in another tax year. For additional
information on federal NOLs, see Internal Revenue Service
(IRS) Publication 536.
The Michigan NOL
The Michigan NOL is computed independently of the
federal NOL. The calculation of a Michigan NOL follows
the same general format as the federal NOL calculation
but begins with federal AGI rather than federal taxable
income. Therefore, federal itemized or standard deductions
that may be used to create or contribute to the federal
NOL are not considered when calculating the Michigan
NOL. The Michigan NOL is subject to the allocation and
apportionment provisions of Chapter 3 of the Income Tax
Act which excludes income and loss attributable to other
states. Additionally, income from the production of oil and
gas and nonferrous metallic mineral extraction subject to
Michigan severance tax and expenses of production are
excluded.

2023 Schedule MI-1045, Page 3

To determine whether an NOL was incurred from
Michigan sources, regardless of whether or not there
was a corresponding federal NOL, complete the
Schedule MI-1045 for the year of the loss.
The Michigan NOL may be carried over in the same
manner and to the same time periods as provided for
in IRC 172 in effect for the year the loss was incurred.
An NOL must be claimed in consecutive years. If
there is a change in filing status, Michigan follows
federal regulations. Additionally, the amount of the
combined Michigan NOL carryover must be reduced
by any Michigan sourced excess capital loss and other
modifications required under IRC 172 or elections under
IRC 965 claimed in the previous carryover year.
For additional information regarding NOLs, see IRS
Publication 536 and Michigan Revenue Administrative
Bulletin 2020-23.
Nonresidents and Part-Year Residents
Nonresidents and part-year residents may also be entitled
to a Michigan NOL deduction. Only Michigan-sourced
income or loss may create a Michigan NOL. Complete
Schedule MI-1045 to determine if a Michigan NOL was
incurred. In a carryforward year, enter the total amount
of the federal NOL deduction included in AGI on
Michigan Nonresident and Part-Year Resident Schedule
(Schedule NR), line 11, column C. The Michigan NOL
deduction is computed on Form 5674 and claimed as a
subtraction on the Michigan Schedule 1.
NOTE: Do not report a Michigan NOL deduction
on Michigan Schedule NR or claim the federal NOL
deduction as an addition on Michigan Schedule 1.

Amending the NOL
If you file an amended MI-1040 for a loss year which
changes your NOL, you must include the applicable
amended MI-1045 for the loss year. Provide all required
supporting documentation to substantiate the change.
If you need to amend an NOL carryforward, see the
applicable year’s MI-1040 booklet on filing an amended
MI-1040. Include all required documentation to
substantiate the change. An NOL must be claimed in
consecutive years. Do not amend Form MI-1040 to request
a refund for the carryback year, see Form 5603 to claim a
farming loss carryback.
Statute of Limitations for NOL Refund Claims
A claim for a refund based on an NOL must be filed
within the four-year statute of limitations period (open tax
year). If an NOL is sustained in a year that is outside the
four-year statute of limitations period (closed tax year), a
taxpayer may still claim the NOL deduction in open tax
years. However, the election to forgo the carryback of an
NOL is not allowed if the NOL was established outside the
statute of limitations period. The taxpayer must calculate
the amount of the Michigan NOL that would have been
absorbed by Michigan taxable income before exemptions
in the closed tax year(s) to determine the amount that can
be carried forward to the first open tax year(s). Treasury
may redetermine the correct taxable income before
exemptions in a closed tax year to ascertain either the
amount of an NOL or the amount of an NOL deduction
absorbed in the closed tax year(s) to determine the correct
NOL carryforward to the first open tax year.

Line-by-Line Instructions for Schedule MI-1045
Lines not listed are explained on the form.

Part 1: Compute the Net Operating Loss
To complete Part 1, use entries from your Michigan
Individual Income Tax Return (MI-1040) and Michigan
Schedule 1 for the year the loss occurred.
Line 12: Miscellaneous subtractions are limited to:
• Losses from the disposal of property reported in the
Michigan column of MI-1040D, line 13, or MI-4797,
line 18b
• Adjustments for out of state business activity not
reported on another line of Schedule 1 or this form.
Line 15: Complete Part 2 and enter amount from line 30
on this line.
Line 16: The excess capital loss deduction must be
calculated on a U.S. Form 1045 Schedule A, line 21 or 22,
then entered on this line.
Line 17: Enter the following Michigan sourced
adjustments from U.S. Form 1040 Schedule 1, used to
arrive at federal AGI:
• Deduction for self-employment tax
• Deduction for self-employed health insurance
• Educator expenses and/or moving expenses

Line 19: This is the Group 2 NOL available to claim as
a carryforward to the next tax year on Form 5674 or
carryback on Form 5603, if eligible.
Part 2: Excess Nonbusiness Deductions
To complete Part 2, use the Michigan portion of entries
from your U.S. Form 1040 for the year the loss occurred.
Michigan follows the general NOL provisions of IRC
172 for determining nonbusiness deductions. See
IRC Reg 1.172-3 for more information.
Lines 20 through 22: Enter the Michigan-sourced
nonbusiness deductions from U.S. Form 1040 Schedule 1.
Lines 24 through 28: Enter the Michigan-sourced
nonbusiness income included in line 14.

Required Supporting Documentation
To help reduce processing delays, review the following to ensure all supporting documents
are included when establishing an NOL.

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U.S. Form 1040

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U.S. Form 1040 Schedule(s) 1, A, B, C, D, E, F

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U.S. Form 4797

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U.S. Form 4835

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U.S. Form 1045 Schedule A

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Schedule K-1(s)

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MI-1041 and final Schedule K-1 from the U.S. Form 1041 when an NOL is created from
the termination of a trust

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For all business activity, provide a statement indicating the type and location (city and
state) of each source of income or loss. For assistance, refer to the “Business, Rental &
Royalty Activity Worksheet” available on Treasury’s website.

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Any other applicable documentation to support the NOL.