Losses generated in active business activities by non-corporate taxpayers (starting 2018 and ending in 2025) can be used to offset not more than $250,000 of non-business income (or $500,000,  in the case of a joint return), under a provision that received little attention before its enactment. This rule is in addition to the passive loss rules that (since 1986) prohibit a non-corporate taxpayer from using passive  losses to offset active business or portfolio income -- with this new active business loss limitation, active business losses have no utility against passive and portfolio income above the $250,000 or $500,000 allowance.

  • Business losses in excess of the currently deductible portion may be carried forward and used against active business income in future tax years.
  • The Act made several important changes to the net operating loss (NOL) rules for individual and corporate taxpayers -- eliminating the two-year NOL carryback period and providing an indefinite carry forward period, while imposing an 80% ceiling on the amount of taxable income that can be offset by NOL carryforwards.

Akerman Insights

  • The new excess business loss limitation for individuals generally will negatively impact real estate operators and developers, typically structured in pass-through form. The new 80% limitation on NOL utilization, which creates an effective minimum rate of approximately 4.2% under the new 21% corporate tax regime, and fashioned after the 90% of AMTI limitation on NOLs under the former Alternative Minimum Tax  (now repealed by the Act), will significantly impact all industries except insurance.