If you have a Michigan Net Operating Loss (NOL) carryforward, you may be able to reduce your Michigan taxable income by claiming the Michigan Net Operating Loss Deduction on Form MI-5674. The deduction is reported as a subtraction on Michigan Schedule 1 and can lower your Michigan tax liability, increase your refund, or reduce the amount you owe.
Program Entry
Michigan Return → Subtractions From Income → Michigan Net Operating Loss Deduction
What Is Form MI-5674?
Form MI-5674, Michigan Net Operating Loss Deduction, is used to calculate the Michigan NOL deduction you're allowed to claim in the current year from available Michigan NOL carryforwards. The deduction calculated on Form MI-5674 is entered on Michigan Schedule 1, line 34 and is carried to the Michigan return.
Michigan requires taxpayers to calculate the original loss year on Schedule MI-1045 before a Michigan NOL carryforward can be claimed. A Michigan NOL deduction cannot be claimed unless the loss was properly calculated and supported.
Did Your Filing Status or Marital Status Change Since the NOL Was Created?
Select Yes or No.
Choose Yes if there has been a change in filing status or marital status since the NOL originated, such as:
- Marriage
- Divorce
- Changing from Married Filing Jointly to Married Filing Separately
- Changing from Married Filing Separately to Married Filing Jointly
- Death of a spouse
When a status change occurs, the Michigan NOL and the income used to absorb the loss may need to be recomputed. Michigan generally instructs taxpayers to follow the guidance in IRS Publication 536 to determine the correct share of the NOL after a status change. Additional schedules or worksheets may be required.
Choose No if your filing status and marital status have remained the same since the NOL was created.
Total Group 1 NOLs
Enter the total available Group 1 Michigan NOL carryforward.
Group 1 NOLs generally consist of losses created in 2017 and earlier. These losses may be carried forward for up to 20 consecutive tax years after the loss year. Only enter the unused balance remaining after prior-year deductions have been applied.
Total Group 2 NOLs
Enter the total available Group 2 Michigan NOL carryforward.
Group 2 NOLs generally consist of losses created in 2018 and later and may include:
- Group 2 CARES Act NOLs
- Group 2 TCJA NOLs
- Certain Michigan Excess Business Loss carryforwards
Unlike Group 1 NOLs, Group 2 NOLs generally have an indefinite carryforward period. However, beginning January 1, 2021, the deduction is generally limited to the lesser of:
- The available Michigan NOL deduction, or
- 80% of Michigan taxable income before exemptions.
Attach Supporting NOL Documentation
Select Begin to attach supporting documents for the deduction.
Michigan recommends attaching:
- Schedule MI-1045 and supporting documentation for each NOL year.
- A schedule showing how the NOL carryforward has been absorbed over time.
- A Michigan NOL Carryforward Worksheet, if available.
- Any re-computation schedules related to filing status or marital status changes.
Providing these documents may help avoid processing delays and requests for additional information.
How Does the Michigan NOL Deduction Affect My Return?
The Michigan NOL deduction reduces Michigan taxable income. As a result, it may:
- Reduce Michigan income tax.
- Increase a Michigan refund.
- Reduce the amount due with the return.
The allowable deduction is determined using Form MI-5674 and Michigan's NOL carryforward rules.
Additional Information
For more information see the Michigan Net Operating Loss Deduction Instructions here.