Net Operating Losses on Individual Income Tax Returns

PURPOSE: This rule explains the proper treatment of net operating losses for purposes of Missouri individual income tax, as well as the handling of negative federal adjusted gross income by individuals. (1) An individual taxpayer cannot have a negative federal adjusted gross income for purposes of computing Missouri adjusted gross income or Missouri nonresident adjusted gross income. An individual who, for federal income tax purposes, has a negative federal adjusted gross income for a given tax year must compute Missouri adjusted gross income or Missouri nonresident adjusted gross income for that tax year as though such individual’s federal adjusted gross income was zero dollars ($0). (A) Example: For federal income tax purposes, Taxpayer A’s federal adjusted gross income is negative fifty thousand dollars (-$50,000). Taxpayer A has Missouri addition modifications of sixty thousand dollars ($60,000), and is entitled to a Missouri standard deduction of thirteen thousand dollars ($13,000). Taxpayer A is a Missouri resident, and has no other deductions, credits, or modifications. In completing the Form MO-1040, Taxpayer A must enter zero dollars ($0) on the line requesting the taxpayer’s federal adjusted gross income. Taxpayer A adds the Missouri addition modifications of sixty thousand dollars ($60,000), resulting in a Missouri adjusted gross income of sixty thousand dollars ($60,000). Taxpayer A then deducts the Missouri standard deduction of thirteen thousand dollars ($13,000), resulting in a Missouri taxable income of forty-seven thousand dollars ($47,000). (2) A resident individual taxpayer must include, as an addition modification in computing Missouri income tax liability, the following net operating loss deduction amounts, to the extent used in determining federal taxable income for the tax year and allowed by Internal Revenue Code section 172: (A) A net operating loss deduction carried backward for more than two (2) years; (B) A net operating loss deduction carried forward for more than twenty (20) years; and (C) A net operating loss deduction claimed for the tax year in which the loss occurred. Internal Revenue Code section 172 generally does not allow a net operating loss deduction to be claimed for the same tax year in which the loss occurred. (3) Any amount of net operating loss deduction used in determining federal taxable income but disallowed by section 143.121.2(4), RSMo, for Missouri income tax purposes may be carried forward and taken against any income on the Missouri income tax return for no more than twenty (20) years after the year of the initial loss. (4) A nonresident individual taxpayer shall use, in determining Missouri nonresident adjusted gross income, the portion of the modification amount prescribed by section 143.121.2(4), RSMo, which relates to income derived from sources in Missouri. (5) The addition modification in section 143.121.2(4), RSMo, and as explained in section (2) of this rule, does not apply to a net operating loss deduction allowed, pursuant to Internal Revenue Code section 172(b)(1)(B), for the carryback of a farming loss. AUTHORITY: section 143.961, RSMo 2016.* Original rule filed Nov. 29, 1995, effective May 30, 1996. Amended: Filed Dec. 20, 2023, effective July 30, 2024. *Original authority: 143.961, RSMo 1972.