Temporary Repeal of Excess Business Loss Limitation Rules

COVID-19 Update

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) repeals the “excess business loss” limitation rules previously enacted by the 2017 federal tax reform for the 2018, 2019 and 2020 tax years, as if such limitation had never been enacted. The excess business loss limitation rules would continue to apply to tax years beginning after December 31, 2020, and before January 1, 2026. The excess business loss limitation rules enacted in 2017 provide that for tax years beginning after December 31, 2017, and before January 1, 2026, excess business losses of a taxpayer other than a corporation are not allowed. An excess business loss is the amount by which the total deductions attributable to all of a taxpayer’s trades or businesses exceed that taxpayer’s total gross income and gains attributable to those trades or businesses plus $250,000 (or $500,000 in the case of a joint tax return). Any excess business losses become part of a taxpayer’s net operating loss that is carried forward to later tax years. 

How Manatt Can Help: Manatt’s tax practice regularly advises partnerships and individual taxpayers on a variety of income tax matters and corresponding provisions of California, New York and other state laws. Manatt’s tax practice is closely monitoring the tax provisions of the CARES Act and will provide updates as they develop.

For More Information: Contact Jeffrey A. Mannisto, partner and leader, Manatt Tax, at jmannisto@manatt.com or 310.312.4212; Robert Duran, partner, Manatt Tax, at rduran@manatt.com or 310.312.4274.

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