Excess Business Losses

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Message Board Excess Business Losses

This topic contains 2 replies, has 2 voices, and was last updated by Peter Muffoletto 1 week, 4 days ago.

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  • #124354
    Peter Muffoletto
    Participant

    Yesterday at the Oxnard seminar the issue of Excess Business Losses was presented.

    I have read the following as well as what was presented, but still need some guidance.

    Assuming for the moment a non-corporate taxpayer has wages and other, given that he/she passes all the limitation rules, my reading of this new code section is that with MFJ the loss limitation is allowable up to $500k, and $250k for Single against all other income – am I reading this correctly? your presentation skimmed through this late in the afternoon, and didn’t get into any detail.  I tested this against both Lacerte, and BNA – both allow the losses up to the limitations.

    The Act imposes another limitation on a non-corporate taxpayer’s ability to utilize a pass-through loss against other income – whether it is realized through a sole proprietorship, S corporation or partnership – which is applied after the basis-limitation, at-risk, and passive loss rules.

    Specifically, for taxable years beginning after December 31, 2017 and before January 1, 2026, the excess business losses of a non-corporate taxpayer are not allowed for the taxable year.

    A taxpayer’s “excess business loss” for a taxable year is the excess of:

    (a) the taxpayer’s aggregate deductions attributable to his trades or businesses for the year, over

    (b) the sum of:

    (i) the taxpayer’s aggregate gross income or gain for the year attributable to such trades or businesses, plus

    (ii) $250,000 (or $500,000 in the case of a joint return).[5]

    In the case of a partnership or S corporation, this provision (as in the case of the at-risk and passive activity rules) is applied at the partner or shareholder level. Each partner’s and each S corporation shareholder’s share of the pass-through entity’s items of income, gain, deduction, or loss are taken into account in applying the limitation for the taxable year of the partner or S corporation shareholder.

    The non-corporate taxpayer’s excess business loss for a taxable year is carried forward and treated as part of the taxpayer’s net operating loss (“NOL”) carryforward in subsequent taxable years.[6]

  • #124499
    Mike Giangrande
    Participant

    Peter,

    Yes, you are reading the excess business loss rules correctly. It effectively limits an individual taxpayer’s ability to deduct losses against other income during the year. The limit is $500k ($250k for MFS). The excess losses are carried forward as net operating losses.

  • #124508
    Peter Muffoletto
    Participant

    thx – you might want to expand the explanation at the seminars as this was glossed over very quickly yesterday. When I spoke to the two sitting on either side of me afterwards their comment was the same. Again, thanks.