Inflation Reduction Act Extends Limitation on Excess Business Losses

Under the 2017 tax reform legislation, excess business losses of a non-corporate taxpayer are not allowed for the taxable year. These losses are carried forward and treated as part of the taxpayer’s net operating loss carryforward in subsequent tax years. NOL carryovers generally are allowed for a tax year up to the lesser of the carryover amount or 80 percent of taxable income determined without regard to the deduction for NOLs. An “excess business loss” is the excess of aggregate deductions of the taxpayer attributable to trades or businesses of the taxpayer (determined without regard to the limitation of the provision), over the sum of aggregate gross income or gain of the taxpayer plus a threshold amount. The annual threshold amount is $250,000 (or twice the otherwise applicable threshold amount for married taxpayers filing a joint return). The Inflation Reduction Act of 2022 extends the limitation on excess business losses through 2028. For more information on the excess loss limitation provisions, visit Tax Facts Online. : Q . Note: Q is updated.