Form 461, Limitation on Business Losses, is used to report and apply restrictions on the amount of business losses that can be deducted on your tax return. This form is a part of the tax regulations established by the Tax Cuts and Jobs Act (TCJA) and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which set limits on how much business loss can offset non-business income.
What is the form used for?
The form calculates the allowable amount of business losses that can be used to offset other income according to IRS guidelines.
What are the limitations?
For the 2024 tax year, the limitation amounts for business losses under the Tax Cuts and Jobs Act (TCJA) are as follows:
- $289,000 for individuals
- $578,000 for married couples filing jointly
Any business losses exceeding these amounts are carried forward to future years as net operating losses (NOLs), which can be used to offset income in those subsequent years.
Who should file Form 461?
Taxpayers with business losses that exceed the tax law limits use this form. It is generally used by individuals reporting business income and losses on Schedule C or other forms. It is particularly relevant for individuals with significant business losses.
This form will automatically generate in the program based on your entries.
Program Entry
The program automatically generates the form, if needed, based on the taxpayer's entries into the program. This form is located in the Federal Section under Income > Less Common Income> Form 461 . Additionally, we have three lines that the taxpayer can adjust. They are:
- Other income or losses from a trade/business not reported- reported on line 8 of Form 461
- Amount to adjust income/gains reported not attributable to a trade or business- reported on line 10 of Form 461
- Amount to adjust losses/deductions reported not attributable to a trade or business - reported on line 11 of Form 461. According to the IRS. "Losses from sales or exchanges of capital assets are not included in the calculation of trade or business deduction. Such amounts included on line 3 should be added back here to remove it from the computation."