Identification

• On Form 1040X, the term NOL stands for net operating loss. This loss happens when a filer's deductions are greater than the income for the year, according to IRS Publication 536. Common deductions that result in net operating losses include those for rental property or operating a business. An NOL can be reported on Schedule A of Form 1040, which is an income tax form for individual tax filers.
  
  

Significance

• The IRS explains in Publication 536 that you can use Form 1040X to get a refund or credit based on an NOL. In order to receive a refund or credit, the amended income tax return must be filed within three years of the due date of the original return. When filing Form 1040X, include Form 1045, the Application for Tentative Refund.
  
  

Features

• If you need to amend your tax return, the NOL can be reported on the amended tax return, or Form 1040X. When filling out Form 1040X, you indicate an NOL by checking a box on Line 1, "Adjusted Gross Income," in the "Income and Deductions" section. In this section, you also list the original amount from Form 1040, along with the adjusted amount. You will also need to provide an explanation of why you are filing an amended income tax return in Part III of Form 1040X, "Explanation of Changes."
  
  

Considerations

• The IRS explains that you should file a separate Form 1040X for each year that you wish to amend. If you claim a refund and the IRS determines that you have claimed more than you are eligible to receive, you could subject to a penalty equaling 20 percent of the amount you claimed. In the event that a refund is owed, a check will be issued; refunds claimed via amended returns cannot be deposited to your bank account, according to the IRS.