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The Tax Cuts and Jobs Act of 2017 enacted new excess business loss (EBL) limitation rules for individuals and other non-corporate taxpayers in 2018 through 2025. For a tax provision that was projected to raise $150 billion in federal revenues over a decade (more than GILTI, BEAT, or all the fringe benefit changes combined), the EBL rules have not received a significant amount of attention from commentators or the IRS and Treasury. The result of the limitation is that business deductions and losses may offset only up to $500,000 of investment income and other non-business income. Major 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, the section 199A pass-through business income deduction, and (ironically) certain losses from the disposition of business property. The statute provides that unused EBLs are carried forward as a net operating loss, but there continues to be uncertainty and debate over how to apply the carryover rules in 2019 and later.
Please join Libin Zhang, tax partner at Fried, Frank, Harris, Shriver & Jacobson LLP, as he:
- Discusses a history of new section 461(l) and its policy purposes, if any;
- Goes over examples of how the EBL rules interact with passive activity loss rules;
- Analyzes other tax provisions that may help in computing EBL; and
- Provides insight into the many open issues in connection with EBL carryovers.
Program Level: Update
Intended Audience: In-house counsel, outside attorneys, accountants and other allied financial professionals responsible for advising clients about tax-efficient transactions and their tax liabilities
Advanced Preparation: None