Net operating losses.

(1) Net operating loss reduction. The amount of net operating loss, as determined for Federal income tax purposes, for the taxable year which is available as a carry-over to a succeeding taxable year, is to be subtracted from the amount by which the sum of the New York items of tax preference exceed the total of the applicable specific deduction and the New York State personal income tax for the year.

(2) Net operating loss restoration.

(i) General. The amount of the net operating loss used in a prior year to reduce the sum of the New York items of tax preference of a resident taxpayer must be treated as a New York item of tax preference and added to the total Federal items of tax preference in the next succeeding taxable year or years, in order of time, in which such net operating loss carryover reduces Federal taxable income.

(ii) Priority of reduction. If a portion of a net operating loss was used in a prior taxable year to reduce the sum of the New York items of tax preference of a resident taxpayer, such portion is deemed to reduce Federal taxable income in succeeding taxable years only after the portion of such net operating loss not so used in the prior taxable year is first used to reduce Federal taxable income in such succeeding taxable year.