IRS Issues Guidance on Changes to Excess Business and Net Operating Losses

December 18, 2018

The IRS has issued guidance on excess business loss limitations and net operating losses post-reform.

The Tax Cuts and Jobs Act modified existing tax law - by limiting losses from all types of business for non-corporate taxpayers. An excess business loss is the amount by which the total deductions from all trades or businesses exceed a taxpayer’s total gross income and gains from those trades or businesses plus $250,000, or $500,000 for a joint return.

Excess business losses that are disallowed are treated as a net operating loss carryover to the following taxable year. More information is available here.

See Form 461 and instructions, available soon on the IRS website, for details.

TCJA also modified net operating loss (NOL) rules. Most taxpayers no longer have the option to carryback a NOL. For most taxpayers, NOLs arising in tax years ending after 2017 can only be carried forward. Exceptions apply to certain farming losses and NOLs of insurance companies other than a life insurance company.

For losses arising in taxable years beginning after Dec. 31, 2017, the new law limits the NOL deduction to 80 percent of taxable income. More NOL guidance is available here.