Question

In 2019, Theo, a single taxpayer, operates a sole proprietorship in which he materially participates. His proprietorship generates gross income of $320,000 and deductions of $600,000, resulting is a loss of $280,000. The large deductions are due to the acquisition of equipment and the use of immediate expense and additional first-year depreciation to deduct all the acquisitions. What is Theo's excess business loss for the year?

Answer 1

For 2019, an excess business loss is the excess of your aggregate business deductions for the tax year over the sum of $255,000 or $510,000 if you’re married and file jointly and your aggregate business income and gains for the tax year.

In Theo’s case Deductions-$600,000 and Business Income -$320,000 resulting in a loss of $280,000

As per IRC ($600,000-($320,000+$255,000))

Therefore excess of $25000 Net operating loss can be carried forward in later years and $255,000 is allowed in the current tax year.

Please note until 2018 limit was $250000 for individual and $500000 in case of joint return.