04 Deduction of losses

A loss that is deducted in computing the nonresident’s federal adjusted gross income is automatically included in that taxpayer’s Maine adjusted gross income for the same tax year. If the loss is a “Maine-source loss,” it is allocated to Maine when computing income from a trade or business in Maine on Schedule NR or Schedule NRH. A loss realized by a nonresident is attributable to Maine when the loss is derived from or connected with sources in Maine (“Maine-source loss”). 18-125 Chapter 806 page 8 A. Net operating loss. A net operating loss that is derived from or connected with the carrying on of a trade or business in Maine is a Maine-source loss. B. Capital loss. A capital loss that is derived from the ownership or disposition of any interest in real or tangible personal property located in Maine is a Maine- source loss. C. Rental loss. A rental loss derived from real or tangible personal property located in Maine is a Maine-source loss. D. Carryback or carryforward. Since Maine adjusted gross income is derived from federal adjusted gross income and the Code provides for the carry back or carry forward of certain losses, a taxpayer may carry back (except as provided in the next paragraph) or carry forward a loss on the Maine return only if that loss is carried back or carried forward on the taxpayer’s federal return for the same tax year, excluding losses disallowed in 2009, 2010, and 2011. If the only Maine- source items in federal adjusted gross income are losses, and those Maine losses are fully absorbed by income derived from sources outside of Maine, the Maine losses cannot be carried back or carried forward for Maine purposes. 1. Net operating losses realized after 2001. Net operating losses realized after 2001 that are carried back for federal income tax purposes are not allowed for Maine income tax purposes in the carryback year. The disallowance is effected through an addition income modification in the carryback year. The amount of the addition income modification may be used as a subtraction modification in the loss year (assuming there are sufficient Maine income tax income additions in that year) or in tax years subsequent to the year of the loss, but only to the extent not previously used to offset Maine income. Only that portion of the carry back loss that is sourced to Maine may be used to reduce federal adjusted gross income in the loss year or carryforward years. The net operating loss amount must be used within the allowable net operating loss carryover period. 2. Tax years beginning in 2009, 2010, and 2011. Maine disallows carryforwards in 2009, 2010, and 2011. Any federal carryforward in those years must be offset with a corresponding addition modification. The addition modifications for a federal carryback or carryforward can be recaptured in years subsequent to the year of the loss, beginning with tax year 2012, through subtraction modifications. The recapture modifications must be reduced by any Maine income that is offset in the year of the loss. 36 M.R.S. § 5122(1)(DD) and (2)(CC). E. Negative or zero federal adjusted gross income. If the nonresident taxpayer's federal adjusted gross income is negative or zero for the taxable year and the taxpayer has recognized Maine-source income, there will be no Maine tax on that income. 18-125 Chapter 806 page 9