Excess Business Loss Limitation refers to a provision under the Tax Cuts and Jobs Act (TCJA) that restricts the amount of business losses that individuals can deduct in a given tax year.
Under this provision, for tax years beginning after December 31, 2017, and before January 1, 2026, non-corporate taxpayers can only offset business losses against non-business income up to a specified threshold. Any excess business loss above this threshold is treated as a net operating loss (NOL) that can be carried forward to future tax years.
For example, if a taxpayer has a business loss of $500,000 but the excess loss limit for the year is $270,000, the taxpayer can only deduct $270,000 against other income. The remaining $230,000 would be carried forward as an NOL to offset income in future years.
This limitation is designed to prevent high-income taxpayers from using large business losses to significantly reduce their overall tax liability.
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