As part of ongoing efforts to reshape the post-TCJA tax landscape, the U.S. House of Representatives recently passed the One Big Beautiful Bill (OBBB) Act, which includes a significant provision affecting noncorporate taxpayers: The permanent extension of the excess business loss (EBL) limitation, with adjustments to the EBL computation.

Current law overview

The EBL limitation, introduced under the Tax Cuts and Jobs Act (TCJA) and codified in IRC Section 461(l), restricts the amount of business losses that individuals and other noncorporate taxpayers can use to offset non-business income. For tax year 2025, the inflation-adjusted thresholds are $313,000 for single filers and $626,000 for joint filers. Losses exceeding these thresholds are not deductible in the current year but are treated as net operating losses (NOLs) and carried forward to future years, at which point they can offset business and other sources of income, subject to the 80% taxable income limitation.

This provision is currently scheduled to sunset after Dec. 31, 2028.

Proposed changes in the OBBB

The new legislation proposes to eliminate the sunset clause, effectively making the EBL limitation permanent. 

In  addition, the bill modifies the calculation of excess business losses by requiring taxpayers to include disallowed EBLs from prior years in the current year’s EBL computation. In other words, a taxpayer would need current-year business income to deduct an EBL carryover under the proposed law, whereas under current law the NOL that is instead created can offset income from sources other than business activity. This change, which would be effective for losses arising in tax years after Dec. 31, 2024, could further restrict the ability to offset income with business losses, particularly for taxpayers with recurring or cyclical losses. 

Policy implications

Supporters of the permanent EBL limitation argue that it promotes tax fairness and curbs aggressive tax planning strategies. Critics, however, caution that it may discourage entrepreneurship and investment by limiting the deductibility of legitimate business losses.

As this legislation moves to the Senate, we will continue to monitor its progress and assess its potential impact on tax planning strategies. Clients with significant business activities or pass-through income should be especially mindful of how these changes could affect their long-term tax positions.

Contact your tax advisor with any questions about how this may apply to your individual tax scenario.