Michigan allows eligible taxpayers to deduct certain Michigan Net Operating Losses (NOLs) from Michigan taxable income. The deduction is claimed using Form MI-5674, Michigan Net Operating Loss Deduction. [michigan.gov]
Form MI-5674 is required when claiming a Michigan NOL deduction on Michigan Schedule 1 and must be included with Form MI-1040. All NOL deductions must be supported by Schedule MI-1045 for the loss year. [michigan.gov]
Program Entry
Michigan Return → Subtractions From Income → Michigan Net Operating Loss Deduction
What Is Form MI-5674?
Form MI-5674 is used to calculate the current-year Michigan NOL deduction from available Michigan NOL carryforwards. The deduction calculated on Form MI-5674 is reported as a subtraction on Michigan Schedule 1. [michigan.gov]
Michigan divides NOLs into two categories:
- Group 1 NOLs
- Group 2 NOLs [michigan.gov]
Was There a Change in Filing or Marital Status Since the NOL Was Created?
Select Yes or No.
Yes
Select Yes if there has been a change in filing status or marital status in any year since the NOL was created.
Examples include:
- Marriage
- Divorce
- Filing jointly instead of separately
- Filing separately instead of jointly
- Death of a spouse
When a filing or marital status change occurs, the Michigan NOL and the income subject to tax may need to be recomputed to determine the correct deduction. Michigan instructs taxpayers to use IRS Publication 536 when determining how to recompute their share of an NOL. Additional worksheets or statements may be required.
No
Select No if your filing status and marital status have not changed since the NOL was created.
Total Group 1 NOLs
Enter the total available Group 1 NOL carryforward.
Group 1 NOLs are losses created in 2017 and earlier. These losses may be carried forward for up to 20 consecutive years following the loss year.
Only enter the unused carryforward that remains available after prior-year utilization.
Total Group 2 NOLs
Enter the total available Group 2 NOL carryforward.
Group 2 NOLs are losses created in 2018 and later and include:
- Group 2 CARES Act NOLs
- Group 2 TCJA NOLs
- Certain Michigan excess business losses carried forward from prior years
Unlike Group 1 NOLs, Group 2 NOLs may be carried forward indefinitely. However, beginning January 1, 2021, the deduction is generally limited to the lesser of the Michigan NOL deduction available or 80% of Michigan taxable income before exemptions.
Attach PDF of the NOL Worksheet
What Should Be Attached?
Select Begin to attach supporting documentation for the NOL deduction.
Michigan recommends including:
- Schedule MI-1045 and supporting documentation for each loss year.
- A schedule showing how the Michigan NOL was absorbed.
- The Michigan NOL Carryforward Worksheet, if used.
- Any recomputation schedules required due to a filing status or marital status change.
Providing the supporting documentation may help reduce processing delays.
How Does This Affect My Return?
The Michigan NOL deduction reduces Michigan taxable income.
As a result, it may:
- Lower Michigan tax liability.
- Increase a Michigan refund.
- Reduce the amount of tax due.
The deduction allowed for the current year is determined using Form MI-5674 and may be limited by Michigan's NOL carryforward rules.
Notes
- Form MI-5674 must be included when claiming a Michigan NOL deduction.
- All Michigan NOL deductions must be supported by Schedule MI-1045.
- Group 1 NOLs are generally losses created in 2017 and prior years and may be carried forward for up to 20 years.
- Group 2 NOLs are generally losses created in 2018 and later years and may be carried forward indefinitely, subject to applicable limitations.
- Michigan requires taxpayers to keep records supporting an NOL for six years after the NOL is fully absorbed or expires.
- The NOL carryforward must generally be reported in consecutive years, even if there is no Michigan taxable income before exemptions.
For more information see the Michigan Net Operating Loss Deduction Instructions here.