Tax Law Insights

The Tax Cuts and Jobs Act of 2017 (“TCJA”) added new Section 461(l) to the Internal Revenue Code (the “Code”).  This new Code section limits the ability of noncorporate taxpayers, including individuals and “pass-thru” business entities (e.g., partnerships and S corporations), to deduct business losses against nonbusiness income.  This new rule works together with the passive activity loss limitation rules of Code Section 469.

In particular, Section 461(l) denies noncorporate taxpayers a deduction for “excess business losses.”  An “excess business loss” ...