Final answer:
The taxpayer must add back $2,000, which represents the excess business capital losses after netting capital gains and losses, to calculate the NOL.
Step-by-step explanation:
The student has asked how much they must add back to taxable income to calculate the Net Operating Loss (NOL). Taking into account the taxpayer's capital gains and losses, interest income, and itemized deductions, we start by netting the capital gains and losses. Business capital gains and losses are netted as $3,000 of business capital losses minus $1,000 of business capital gains results in $2,000 of business capital losses. Nonbusiness capital gains and losses are netted as $1,600 of nonbusiness capital gains minus $1,000 of nonbusiness capital losses results in $600 of net nonbusiness capital gains. However, per tax law, the net capital loss that can be used to offset other income is limited to $3,000; so, the excess business capital loss of $2,000 needs to be added back to calculate the taxable income. Since there's also a limitation on itemized deductions, and assuming no other factors affect this calculation, the amount to be added back would only consist of the excess business capital losses of $2,000.
According to the Tax Cuts and Jobs Act, itemized deductions may also be limited based on income but to answer the question on NOL calculation, the primary adjustment is based on capital gains and losses limitations. Therefore, $2,000 should be added back to the taxable income to calculate the NOL for this particular scenario.