by Jay Richardson

The Tax Cuts and Jobs Act of 2017 added a provision that limits losses that may be taken by taxpayers other than corporations for tax years beginning after December 31, 2017, and before January 1, 2026. Under Code Sec. 461(l), generally, excess business loss of a taxpayer for the tax year are not allowed. Code Sec. 461(l)(1)(a)(1). Any loss that is disallowed is treated as a “net operating loss carryover” to the following tax year under Code Sec. 172 Code Sec. 461(l)((a)(2).

The term “excess business loss” means the excess (if any) of:

  1. the aggregate deductions of the taxpayer for the tax year which are attributable to trades or businesses of such taxpayer (determined without regard to whether or not such deductions are disallowed for such tax year under the rule limiting excess business losses), over
  2. the sum of (i) the aggregate gross income or gain of such taxpayer for the tax year which is attributable to such trades or businesses, plus $250,000 ($500,000 in the case of a joint return). Code Sec. 461(l)(a)(3)(A).

In general, the CARES Act removed the $500,000 restriction for three years (2018, 2019 and 2020). Taxpayers affected by this limitation may want to review SEC. 2204 of the CARES Act with their tax advisors. Another related provision in the CARES Act (SEC. 2203) eases the use of Net Operating Losses.