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Section 461(l) Excess Business Loss Limitations: What Are They and What to Do With Them

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

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Conducted on Tuesday, January 3, 2023

Recorded event now available

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This webinar will provide tax advisers with a practical exploration of the loss limitation rules of Section 461(l) which was added by the Tax Cuts and Jobs Act of 2017. Although it was suspended for tax years 2018-20 under the CARES Act it is back in place for the tax years 2021- 2028. The panel will discuss what items are included or excluded in the business loss calculations, the effect of such a loss and its carryover to other taxable years, and the interactions with the passive activity loss rules and the Section 199A pass-through business income deduction.

Description

The 2017 tax reform legislation enacted the excess business loss (EBL) limitation rule of new Section 461(l). The law disallows the current deduction of any EBLs, a new statutory creation under Section 461(l). These losses are generally the excess of the taxpayer's aggregate deductions attributable to trades or businesses over the sum of (1) the taxpayer's aggregate gross income or gain attributable to such trades or businesses and (2) $270,000 ($540,000 in the case of a joint return). In other words, net business losses may offset only up to $270,000 or $540,000 of investment income and other non-business income.

Significant questions have arisen over whether various tax items are business or non-business for this purpose, such as wages and salaries, gain on the sale of partnership interests or S corporation stock, cancellation of debt (COD) income, the Section 199A pass-through business income deduction, and (ironically) certain losses from the disposition of business property.

EBLs are carried forward as a net operating loss (NOL), but there is some uncertainty and debate over how to apply the carryover rules. The NOL can offset only up to 80 percent of pre-NOL taxable income in the carryover year. Several identified technical corrections exist for Section 461(l), a lack of official guidance, and a relative scarcity of academic or practitioner commentaries on critical issues.

Listen as our experienced panel provides a practical guide to the current state of Section 461(l) as it applies to non-corporate taxpayers.

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Outline

  1. Section 461(l) overview
  2. Effect of EBL and carryover
  3. Calculating EBL
  4. Interactions with other Code provisions
  5. Items awaiting future IRS guidance

Benefits

The panel will discuss these and other relevant topics:

  • Other Code provisions that may be analogous and help in computing EBL
  • Treatment of partnership and S corporation items for their partners and shareholders
  • The intersection of EBL with Section 199A qualified business loss carryovers
  • Impact of Section 461(l) on passive and non-passive activities

Faculty

Eagan, Michael
Michael Eagan, J.D., LL.M., MBA
Tax Director
CohnReznick

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Singal, Shashi
Shashi Singal, CPA, MSA, CA
Partner
Grassi

Ms. Singal is a Partner at Grassi and brings over 20 years of diversified tax and accounting experience to the firm....  |  Read More

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