“The essence of strategy is choosing what not to do.” -–Michael Porter

 

Quick Answers: What Are the OBBBA’s Excess Business Loss Limitations?

• The OBBBA made the Excess Business Loss limitation permanent (previously set to expire in 2028).
   
• ​​For 2025, you can deduct up to 313K in losses if single, 626K if married.
   
• Any losses beyond the limit can be used to reduce taxes in future years.
   
• The rule mostly affects individual owners of pass-through entities (partners, S-corp shareholders, sole proprietors) — not the businesses themselves.

For a lot of business owners, a loss on the books can actually be a lifeline. Especially if you’ve got a side hustle or a brand-new venture. 

It can wipe out other income (think wages, dividends, even your spouse’s paycheck) and turn into a helpful tax refund, up to a certain amount.

The Excess Business Loss limitation puts a hard cap on how much of that benefit you can actually use. And Congress made that cap permanent. 

Which means your losses may not stretch as far as you expect, and the impact on your cash flow could be very real.

So, let’s take a closer look at what the OBBBA’s Excess Business Loss limitations really mean for your business and how you should strategize for them.

 

How Do Excess Business Losses Work?

Your ‘excess loss’ is basically your business deductions minus your business income, after factoring in the yearly IRS limit: 313K for single filers and 626K for joint filers.

If your losses go over the limit, you can’t use the extra this year. But you don’t lose it. It gets saved and used to reduce taxes in future years.

Here’s an example. Imagine you run a graphic design business. Your business makes 150K in income, but you spend 500K on expenses. That leaves you with a 350K loss. On top of that, you also earn 80K from part-time work.

Remember, the IRS limit for a single filer is 313K. Since your loss is 350K, that means 37K is “excess” and can’t be used this year. The remaining 313K of your business loss can be applied against your income. 

What this means, in practice, is that your 80K of part-time income is completely offset, leaving you with no taxable income for the year. The rest of that allowable loss (233K), is carried forward and can be applied to reduce your tax liability in future years.

The real benefit here is cash flow. You don’t have to pay taxes on your part-time income this year, and you’ll also have a sizeable tax break to apply in the future. 

Originally, these rules were supposed to end in 2028, but the OBBBA has made them permanent. 

 

Why Does This Matter For My Business?

There are 3 big implications of the OBBBA’s Excess Business Loss limitations for your business:

1. How it impacts your cash flow: Losses can no longer fully wipe out other income. That means bigger tax bills in tough years. If you’re planning big investments (say, new equipment with heavy depreciation), know that some of those deductions might be capped.
    
2. You have a safety net: You don’t “lose” what goes over the yearly IRS limit. It becomes stored-up tax relief for future years.
    
3. Year-round planning is critical:  The permanence of the rule means it needs to be part of your ongoing, year-round business strategy. You’ll want to strategically time income and expenses. Accelerating deductions into a year where you’ll be capped might not be optimal. Better to spread or shift expenses where the tax benefit is maximized.

 

FAQs: Excess Business Loss Limitations

“How much of my business loss can I deduct in 2025?”

For 2025, you can deduct up to 313K of losses if you file single and 626K if you file jointly. Anything above that can’t be used this year, but it rolls forward as a tax benefit for the future.

“Can I use business losses to reduce my other income, like wages or investments?”

Yes, but only up to the IRS limit. Losses can offset things like your salary, dividends, or even your spouse’s paycheck. But only within the cap. Anything extra gets carried forward.

“What happens to losses I can’t deduct this year? Do I lose them?”

No, you don’t lose them. They turn into what’s called a Net Operating Loss (NOL) and carry forward to future years. However, NOLs can only offset up to 80 percent of taxable income in those years.

“Do these rules apply to corporations too?”

No. C corporations aren’t affected. The rules only apply to individuals, like sole proprietors, S-corp shareholders, and partners in partnerships. And only to your share of the loss – not the whole business’s numbers.

“What should I do if I know I’m going to have a big loss year?”

Think about timing. You may want to spread out expenses or move income around so you don’t “waste” deductions that get capped. A good tax strategy can help you avoid surprises and maximize the benefit of your losses.

“How does bankruptcy affect my business loss deductions?”

When you go through bankruptcy, any business losses you haven’t yet deducted might be reduced. The IRS treats these losses like an asset. So they can be adjusted as part of the bankruptcy process.

 

Your Next Best Move

If you’ve ever counted on a loss to soften the blow of a tough year, OBBBA’s Excess Business Loss limitations change the way that works. And my aim here is to help you understand what’s going on, so you can strategize for the impacts. 

But here’s the reality: every business owner’s situation is different. And the numbers don’t always play out the way they look on paper. 

So, let’s sit down and talk it through. We’ll run the numbers for your business, map out how these Excess Business Loss rules hit you, and make a plan so you’re not caught off guard:
calendly.com/eco-tax-free-consultation/meeting