Max, a single taxpayer, has a $270,000 loss from his sole proprietorship.How much of this loss is deductible after considering the excess business loss rules?

Question

Quizplus · Accepted Answer

The excess business loss rules limit the amount of business losses that can be deducted in a tax year for non-corporate taxpayers, including individuals. For tax years 2020 through 2025, the excess business loss is the excess of the taxpayer’s aggregate trade or business deductions over the sum of aggregate trade or business income plus an applicable threshold amount (which is $518,000 for 2020).

In this scenario, since Max is a single taxpayer with only one source of business income, his excess business loss would be $270,000 - $518,000 = -$248,000. This means that only the amount of the loss that exceeds the threshold ($518,000) cannot be deducted in the current tax year. Therefore, Max can deduct $255,000 of the $270,000 loss.

Max, a Single Taxpayer, Has a $270,000 Loss from His