Problem 4-13 Net Operating Losses (LO 4.9)

Tyler, a single taxpayer, generates business income of $3,000 in 2016. In 2017, he generates an NOL of $2,000. In 2018, he incurs another NOL of $5,000. In 2019, he generates a modest business income of $6,000 and then in 2020, the COVID-19 pandemic results in an NOL of $13,000. In 2021, Tylers business generates income of $13,000. Assume that in all years, Tyler adopts the NOL treatment that results in the earliest and greatest refund.

Provide a chronological analysis of Tylers treatment of NOLs through 2021 and report any NOL carryforward into 2022.

In 2017, Tyler carries back his $2,000 NOL against his 2016 income leaving $1,000 of 2016 income.

In 2018, Tyler carries forward the NOL to 2019.

In 2019, Tyler can offset 80% of his 2019 income with the 2018 NOL and he has a $200 carry forward from 2018.

In 2020, The COVID-19 provisions allow him to carry back $1,000 to 2016. He can now use all of the remaining $200. 2018 loss against the 2019 income and then can use another $1000 of 2020 NOL against the remaining 2019 income.

The remaining $ fill in the blank NOL from 2020 may be carried forward into 2021. After 2020, NOLs are subject to the 80% income limitation. Tyler will be able to use $10,400 in 2021 and have a $ fill in the blank NOL to carryforward into 2022.

I would like an explanation as to how this is figured out. I have struggled with this one.

Thank you in advance.