The Tax Cuts and Jobs Act (TCJA) and later legislation imposed additional restrictions on the ability of an individual taxpayer—like you—to deduct business losses. Here’s what you need to know.

Note that if you’ve not yet filed your 2024 Form 1040, the excess business loss rule may affect that return.

Excess Business Loss Disallowance Rule

Before the TCJA, you as an individual taxpayer could often fully deduct business losses in the tax year when they arose. That was the result unless

some tax-law provision such as the passive activity loss (PAL) rules prevented that favorable outcome, or

the business loss exceeded your taxable income from other sources, in which case it could contribute to a net operating loss (NOL) for the year.

Before the TCJA, you could carry back an NOL to the two preceding tax years or carry it forward to the following 20 tax years.

For 2018-2028, the TCJA and later legislation imposed new limitations on your current ability to deduct business losses.

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