When a business loss is large enough, Section 461(l) caps how much you can deduct and pushes the rest into a carryforward. Enter your numbers to see the 2026 threshold, the allowed loss, and the NOL you create.
Every row below is produced by the same arithmetic the calculator runs. Filing status drives the threshold — $256,000 single, $512,000 married filing jointly.
| Business & situation | Business deductions | Net business loss | 461(l) threshold | Disallowed this year |
|---|---|---|---|---|
| Dentist, solo S-corp (W-2 wages $120,000), MFJ | $830,000 | $710,000 | $512,000 | $198,000 |
| Restaurant LLC, owner takes no salary, MFJ | $400,000 | $400,000 | $512,000 | $0 |
| Consultant S-corp (W-2 $180,000 + K-1 income), single | $900,000 | $700,000 | $256,000 | $444,000 |
| Farm operation, MFJ, no wages | $300,000 | $250,000 | $512,000 | $0 |
| Startup founder, single, heavy dev spend | $700,000 | $640,000 | $256,000 | $384,000 |
Net business loss = business deductions minus (W-2 wages + other income from the business). Only the portion above the threshold is disallowed. It is not lost — it becomes a net operating loss carryforward (see the Guide tab).
Section 461(l) caps how much net business loss a non-corporate taxpayer can use against non-business income in a single year. It was enacted by the Tax Cuts and Jobs Act, suspended for 2018–2020 by the CARES Act, and is fully back in force. For tax years beginning in 2026 the threshold is $256,000 for single filers and $512,000 for joint filers, per Revenue Procedure 2025-32.
Step 1. Net business loss = total business deductions − (W-2 wages + other business income).
Step 2. Disallowed = the excess of that net loss over the threshold (never below zero).
Step 3. The disallowed amount is added back to your gross income for the current year, then treated as a net operating loss carryforward in the following year.
The limitation only applies after you have aggregated all of your trades or businesses. A $300,000 loss in one business and $250,000 of profit in another nets to a $50,000 business loss, which is nowhere near the threshold. In practice the taxpayers who hit 461(l) are:
W-2 wages you receive from the business offset business losses — a point many people miss. A consultant who pays herself $180,000 of W-2 wages and generates $900,000 of deductible expenses has a net business loss of $700,000, not $900,000. Capital gains and losses are handled separately and are not part of the 461(l) computation.
The disallowed amount becomes an NOL carryforward. Under the post-2017 rules an NOL can be carried forward indefinitely but can only offset 80% of taxable income in any carryforward year and can no longer be carried back (with limited farming exceptions). For a large loss this can mean several years of partial use.
| Item | 2026 amount |
|---|---|
| 461(l) threshold, single / MFS / HoH | $256,000 |
| 461(l) threshold, married filing jointly | $512,000 |
| NOL carryforward usable against taxable income | 80% cap, indefinite carryforward |
| Section 179 expensing limit / phase-out start | $2,500,000 / $4,000,000 |
Section 461(l) caps how much net business loss a non-corporate taxpayer can use against non-business income in a single year. It was enacted by the Tax Cuts and Jobs Act, suspended for 2018–2020 by the CARES Act, and is fully back in force. For tax years beginning in 2026 the threshold is $256,000 for single filers and $512,000 for joint filers, per Revenue Procedure 2025-32.
Step 1. Net business loss = total business deductions − (W-2 wages + other business income).
Step 2. Disallowed = the excess of that net loss over the threshold (never below zero).
Step 3. The disallowed amount is added back to your gross income for the current year, then treated as a net operating loss carryforward in the following year.
The limitation only applies after you have aggregated all of your trades or businesses. A $300,000 loss in one business and $250,000 of profit in another nets to a $50,000 business loss, which is nowhere near the threshold. In practice the taxpayers who hit 461(l) are:
W-2 wages you receive from the business offset business losses — a point many people miss. A consultant who pays herself $180,000 of W-2 wages and generates $900,000 of deductible expenses has a net business loss of $700,000, not $900,000. Capital gains and losses are handled separately and are not part of the 461(l) computation.
The disallowed amount becomes an NOL carryforward. Under the post-2017 rules an NOL can be carried forward indefinitely but can only offset 80% of taxable income in any carryforward year and can no longer be carried back (with limited farming exceptions). For a large loss this can mean several years of partial use.
| Item | 2026 amount |
|---|---|
| 461(l) threshold, single / MFS / HoH | $256,000 |
| 461(l) threshold, married filing jointly | $512,000 |
| NOL carryforward usable against taxable income | 80% cap, indefinite carryforward |
| Section 179 expensing limit / phase-out start | $2,500,000 / $4,000,000 |
Yes. Section 461(l) applies to any non-corporate taxpayer, which includes sole proprietors filing Schedule C, partners receiving K-1s, and S-corp shareholders. C-corporations are the main exception, which is one reason some owners consider a C-corp election in a heavy loss year.
Yes, and this is the most common surprise. W-2 wages the business pays you are treated as business income in the 461(l) computation, so they reduce your net business loss before the threshold is applied. A $900,000 expense year with $180,000 of W-2 wages is a $700,000 net business loss, not $900,000.
No. The disallowed amount is added back to your income in the current year and becomes a net operating loss carryforward. It carries forward indefinitely but can only offset 80% of taxable income in any later year, and carrybacks are generally not allowed for post-2017 losses.
Yes. You aggregate all trades or businesses first and apply the limitation to the combined net figure. A profitable business can absorb a loss from another business before 461(l) ever comes into play, which is why many multi-business owners never hit the threshold.
No. Capital gains and losses are excluded from the business income and deduction aggregation. A large capital gain does not shelter a business loss from 461(l), and a capital loss does not add to the disallowed amount.
Married taxpayers filing separately use the $256,000 single threshold, not $512,000. This is a well-known trap: filing separately halves the threshold, so a couple with a large joint business loss may be far better off filing jointly.
This calculator applies the federal IRC 461(l) excess business loss threshold using 2026 figures from Revenue Procedure 2025-32. It does not handle the interaction with the at-risk rules, passive activity losses under IRC 469, basis limitations, or state conformity rules — several states have not adopted 461(l) at all. Confirm your situation with a qualified tax professional before filing.