January 17 2023

IRS: Inflation Reduction Act Further Extends Limitation of Excess Business Losses of Non-Corporate Taxpayers

Source: IBFD Tax Research Platform News

The Inflation Reduction Act enacted last year has further extended the limitation of excess business losses of non-corporate taxpayers, according to the US Internal Revenue Service (IRS)'s publication issued on 13 January 2023.

The excess business losses limitation under section 461 of Internal Revenue Code (IRC), which was enacted under the Tax Cuts and Jobs Act, caps the amount of business losses that non-corporate taxpayers may deduct from their non-business income. While the limitation had been originally slated to take effect in 2018 and expire in 2025, the Coronavirus Aid, Relief and Economic Security Act retroactively pushed its implementation to 2021.

Meanwhile, the American Rescue Plan Act of 2021 extended its effectivity until 2026. According to the guidance, the Inflation Reduction Act further extends the limitation through tax year 2028.

In addition to discussing the extension of the limitation, the 13 January 2023 publication provides guidance on net operating losses (NOLs) for individuals, estates and trusts filing their 2022 tax returns. Specifically, the publication discusses:

  • how to figure an NOL;
  • when to use an NOL;
  • how to waive the carryback period;
  • how to carry an NOL back or forward;
  • how to claim an NOL deduction; and
  • how to figure an NOL carryover.

Moreover, the publication provides that taxpayers who had an NOL deduction carried forward from a year before 2018 that resulted in having taxable income in their 2022 return of zero (or less than zero, if an estate or trust), must complete Worksheet 2 to help them figure their NOL to carry to 2023.