How to Fill Out Michigan Form 5674: NOL Deduction Line by Line

Michigan Form 5674 is the Net Operating Loss Deduction worksheet you attach to your MI-1040 whenever you carry a prior-year loss forward against your current Michigan income. The form has 12 lines. It sorts your carried losses into two groups, applies an 80-percent cap to one of them, and produces a single deduction figure that flows to Schedule 1, line 30.¹

When You File It

You file Form 5674 in any year you claim a Michigan NOL deduction against your individual income tax. It rides along with three other documents: your MI-1040, Schedule 1, and the Schedule MI-1045 that originally documented the loss year. Missing any of those pieces gives Treasury grounds to reject or hold the claim.¹

Have your MI-1040 and Schedule 1 drafted before you start Form 5674. Most of the lines pull numbers from those two forms, and the math only works if those numbers are already in place.

Sort Your Losses Into Group 1 and Group 2

Before you write anything on the form, figure out which group each carried loss belongs to. Your Schedule MI-1045 from the original loss year tells you.

Group 1 NOLs are standard carryforwards with no percentage cap. They offset your Michigan taxable income dollar for dollar, up to the full amount of that income.

Group 2 NOLs are subject to the 80-percent limitation. Michigan follows federal IRC Section 172, so any Group 2 carryforward beginning January 1, 2021 or later can only offset up to 80 percent of your Michigan taxable income before exemptions.¹

One trap catches people who had losses during the pandemic years. The CARES Act temporarily suspended the federal excess business loss limitation for tax years 2018 through 2020. If you did not amend your return to absorb an excess business loss in the year it occurred, that leftover loss becomes a Group 2 NOL for Michigan.¹ The Group 2 label isn’t obvious there unless you trace the loss back.

Ordering rule: Group 1 losses apply first. Group 2 losses only come into play after Group 1 losses are exhausted or expired.

Line-by-Line Walkthrough

Lines 1 Through 3

Line 1 is a checkbox. Mark it only if your filing or marital status changed in any year between the original loss and the current return. A joint-to-single change, or the reverse, can shift how much of the NOL belongs to you individually, and the form points you to IRS Publication 536 for the recomputation.¹ Michigan does not publish its own allocation rules for this situation.

On line 2, enter your total Group 1 NOLs as a positive number. On line 3, enter your total Group 2 NOLs as a positive number.

Lines 4 Through 7: Your Income Available to Absorb the Loss

These four lines rebuild your current-year income before the NOL deduction:

Line 4: Adjusted Gross Income from MI-1040, line 10.
Line 5: Additions from Schedule 1, line 9.
Line 6: Subtractions from Schedule 1, line 29. Enter as a negative.
Line 7: Combine lines 4 through 6.

Line 7 is your income subject to tax before the NOL deduction. If it comes out to zero or negative, enter zero and skip to line 12.¹ With no positive income, there is nothing for the NOL to reduce, and the whole loss carries forward untouched.

Lines 8 Through 11: The Deduction Itself

Line 8 is line 7 multiplied by 0.80. That sets the ceiling for your Group 2 losses.

Line 9 is your allowable Group 2 NOL: the lesser of line 3 or line 8. If your Group 2 losses fit under the 80-percent cap, you use all of them. If they exceed it, you deduct only up to the cap and carry the remainder forward.

Line 10 adds your full Group 1 NOLs from line 2 to the allowable Group 2 amount from line 9. That is your tentative total deduction.

Line 11 is the final Michigan NOL Deduction: the lesser of line 7 or line 10. Carry that number to Schedule 1, line 30.¹ The deduction cannot exceed the income available, so it cannot create a new loss.

Line 12: When There’s No Income This Year

You reach line 12 by skipping from line 7 when your income was zero or less. Add lines 2 and 3, put the total on line 12, and carry it to Schedule 1, line 30. That number is your entire NOL carryforward to next year, unused.

A Worked Example of the 80-Percent Cap

Say you have $50,000 in Group 2 losses carried forward and line 7 comes to $40,000. Line 8 is $32,000 (80 percent of $40,000). Because your $50,000 in Group 2 losses exceeds that ceiling, line 9 limits you to $32,000. The remaining $18,000 carries to next year’s Form 5674.

Add $10,000 in Group 1 losses to the same picture and the ordering rule shows its purpose. Group 1 losses come off dollar for dollar before Group 2 applies, so your line 10 tentative deduction would be the $10,000 in Group 1 losses plus the Group 2 allowable amount.¹

How to File

Attach the completed Form 5674 to your MI-1040 along with Schedule 1 and the Schedule MI-1045 documenting the original loss year. The form is available through the Michigan Department of Treasury’s tax form search portal at treas-secure.state.mi.us. Michigan’s e-file system supports the return as well.

Keep copies of the form and its supporting schedules for at least four years from the date you file or the date the tax is paid, whichever is later.² Because an NOL can travel across many tax years, the underlying MI-1045 and the running Form 5674 record are worth holding for as long as any part of the loss remains available to carry forward.

1
State of Michigan. 2025 Michigan Net Operating Loss Deduction, Form 5674
2
Internal Revenue Service. How Long Should I Keep Records?