Question

In 2019, John is single and is the owner of a proprietorship with $650,000 of gross income and $975,000 of deductions, resulting in a $325,000 loss for the year. How much of this loss can John deduct in 2019 and what does he do with the excess loss?

Answer 1

Per IRS, an excess loss is the excess of your aggregate business deductions for the year over the sum of :-

1.) Total business income and gains for the tax year and

2.) $250,000 or $500,000 if a person is single or married joint filer respectively.

Any amounts in excess of the above limits are allowed to be carried forward to the subsequent year and are subject to NOL Carryforward rules.

With respect to John, since he is single and has a loss of $325,000 , he would be able to deduct the loss upto $250,000 in his current year tax return. The remaining excess business loss of $75,000 ($325,000 - $250,000) can be carried to subsequent years from where it can be deducted from his income.