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Five Helpful Things to Know About the New Limitation on Claiming Losses

February 01, 2018

By: Amanda Wilson

Last month, President Trump signed into law the much publicized Tax Cut and Jobs Act. In part of our ongoing series discussing the changes made by the Act, the following answers five common questions regarding the new limitation on business losses. This new limitation is unfavorable for those taxpayers it applies to, and was part of the trade-off for the Act lowering tax rates.

1. Who is subject to the limitation?

Any taxpayers other than corporations that are engaged in a trade or business. This includes individuals, sole proprietorships, partnerships, and S corporations.

2. What is the limitation?

A taxpayer can now only claim up to $250,000 ($500,000 for married individuals filing a joint return) of excess business loss in a given tax year. Excess business loss is the amount by which all of the taxpayer’s deductions attributable to his or her trades or businesses exceeds all of the taxpayer’s income or gain attributable to such trades or businesses. Any disallowed excess business loss is carried forward and treated as a net operating loss of the taxpayer.

3. How is the limitation applied for pass-through entities?

The limitation is applied at the partner or S corporation shareholder level.

4. How does the limitation interact with the passive activity rules?

This new limitation joins the gauntlet of rules that partners must satisfy to claim partnership deductions, and applies after the application of the passive activity loss rules of Section 469. A loss that satisfies the requirements of the passive activity loss rules may nonetheless be disallowed under the excess business loss limitation.

5. When does the limitation apply?

The excess business loss limitation applies for taxable years 2018 through 2025.


Amanda

A member of the firm’s tax practice, Amanda Wilson concentrates on federal tax planning and structuring. She represents clients in a wide variety of complex federal tax matters with a particular emphasis on pass-through entities such as partnerships, S corporations and real estate investment trusts. Specifically, Amanda focuses on advising clients on the formation, operation, acquisition and restructuring of such pass-through entities. In addition, she regularly advises clients on the structuring and operation of private equity funds, real estate funds and timber funds. Amanda is the author of the Bloomberg Tax Management Portfolio 718-3rd Edition, Partnerships- Disposition of Partnership Interests or Partnership Business; Partnership Termination.

Amanda regularly works in structuring deals to benefit from tax advantaged structures, including like-kind exchanges, new market tax credits, low income housing tax credits, and qualified opportunity zones. Amanda also has extensive experience in corporate planning and international tax matters, as well as federal tax controversy. Her practice before the Internal Revenue Service (IRS) includes providing advice on audits and appeals, drafting protests and ruling requests, and negotiating settlements.

Prior to joining the firm, Amanda worked for Sutherland Asbill & Brennan LLP (now Eversheds Sutherland), an Am Law 100 firm in the Atlanta office, where she was part of Sutherland’s Tax Practice Group. Amanda has also served as an adjunct professor at Emory University School of Law where she taught Partnership Taxation.

Amanda regularly contributes to the firm’s Taxing Times blog and is a regular panelist on tax webinars hosted by Strafford Publications.

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