IRC Section 461(l) Business Loss Limitations: New Form 461

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

Conducted on Thursday, December 12, 2019

Recorded event now available

or call 1-800-926-7926
Course Materials

This course will explain how to calculate losses under new Section 461(l) and report these losses on Form 461. The panel will discuss what is and is not trade or business income, capital gains and losses to include in the calculation, calculating loss carryforwards, and completing Form 461 with needed clarifications.


Newly added Section 461(l) disallows excess business losses for noncorporate taxpayers. Excess business losses are those above $250,000 ($500,000 for joint taxpayers) after combining all income and losses from all trades or businesses for a taxpayer. This limitation is in addition to and after the passive loss and at-risk limitations already imposed on business losses.

Losses from flow-through entities are combined with Schedule C and other individual income and losses on the individual shareholder or partner's return. Recent tax reform limits net operating loss carryforward deductions to 80% of taxable income or the carryover amount whichever is less.

Questions surround calculating the excess business loss and deducting it in subsequent years. In February 2019, the AICPA sent a letter to the IRS requesting guidance on applying Section 461(l). A few areas for clarification include applying the loss limitations in conjunction with alternative minimum tax, self-employment income, and other losses. One issue is whether wages are considered trade or business income.

The form itself is only 16 lines, and the instructions are just two pages. Fourteen of the amounts on the 16 lines come directly from the 1040 or are simple calculations from preceding lines. On line 10, however, you enter income not attributable to a trade or business, and on line 11, you enter deductions not attributable to a trade or business. Understanding what to include on these two lines is key to calculating the allowed loss.

Adding to the complexity of this calculation is that explicitly following the instructions for inputting capital losses on Form 461 will, in some cases, generate a different result than intended under Section 461(l).

Listen as our panel of experts explains the amounts included on Form 461, the intentions of Section 461(l), carrying over business losses, and handling the related ambiguities.



  1. Section 461(l)
  2. Calculating excess business losses
  3. Defining trade or business under 461(l)
  4. Capital gains and losses under 461(l)
  5. Carryforward calculations
  6. Completing Form 461
  7. Questions surrounding 461(l)


The panel will review these and other essential matters:

  • How is excess business income calculated?
  • What constitutes a trade or business under Section 461(l)?
  • Which capital gains and losses are included on Form 461?
  • What is reported on Lines 10 and 11 on Form 461?


Vercelli, Lydia
Lydia Vercelli, CPA, TEP

Tax Managing Director

Ms. Vercelli is a CPA and a Registered Trusts and Estates Practitioner (TEP) with the Society of Trust and Estate...  |  Read More

Zhang, Libin
Libin Zhang

Fried Frank Harris Shriver & Jacobson

Mr. Zhang is a tax partner in Fried Frank's New York office. Prior to joining the firm in 2019, he was a tax...  |  Read More

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