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Question for the Money Doctors

Question submitted on Oct 6, 2011.

Question

ABC, a sole proprietorship, has an NOL for 2010. If ABC were converted to an LLC in 2011, since the 2011 LLC income is reported on the individual’s Federal 1040, can the carryforward NOL for 2010, on the 2010 Federal 1040, be applied against the 2011 LLC income?

Answer

Technically, a sole proprietorship does not have an NOL, but the NOL is calculated for the individual or individuals who report the loss from the sole proprietorship.  As such, any NOL that is incurred by the individual may be carried forward, to the extent that it is not carried back.  The individual may also elect to forego the carry back period and carry forward any NOL.  The NOL being carried forward can be used to offset income from any source (including the LLC income) on the 2011 federal return.


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