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Department of the Treasury
Internal Revenue Service
2022

Instructions for Form 461

Limitation on Business Losses

Section references are to the Internal Revenue where to report the excess business Gains from the sales or exchanges of
Code unless otherwise noted. loss on your return. capital assets should not exceed the
lesser of:
General Instructions Who Must File 1. Capital gain net income limited to
File Form 461 if you’re a noncorporate only gains and losses attributable to a
Future Developments taxpayer and your net losses from all of trade or business, or
For the latest information about your trades or businesses are more than 2. Capital gain net income.
developments related to Form 461 and $270,000 ($540,000 for married
its instructions, go to IRS.gov/Form461. taxpayers filing a joint return). A trust Trade or business. An activity
subject to tax under section 511 should qualifies as a trade or business if your
What’s New complete Form 461 if it has a loss primary purpose for engaging in the
attributable to its trade or business of activity is for income or profit and you’re
Limitation on excess business los- more than $270,000. See Definitions, involved in the activity with continuity
ses of noncorporate taxpayers. The later. Attach Form 461 to the applicable and regularity. The facts and
disallowance of excess business losses tax return you file. circumstances of each case determine if
is now effective for tax years beginning • Form 1040, U.S. Individual Income an activity is a trade or business. The
after 2020 and before 2029. Tax Return. regularity of activities and transactions
• Form 1040-SR, U.S. Tax Return for and the production of income are
Reminders Seniors. important elements. You don’t need to
Excess business losses. Excess • Form 1040-NR, U.S. Nonresident actually make a profit to be in a trade or
business losses are now computed Alien Income Tax Return. business as long as you have a profit
without regard to any deduction allowed • Form 1041, U.S. Income Tax Return motive. However, you do need to make
under section 172 or 199A and without for Estates and Trusts. ongoing efforts to further the interests of
regard to any deductions, gross income, • Form 1041-QFT, U.S. Income Tax your business.
or gains attributable to any trade or Return for Qualified Funeral Trusts.
business of performing services as an • Form 1041-N, U.S. Income Tax Note. If you own an interest in a
employee. Return for Electing Alaska Native partnership or S corporation, the trade
Settlement Trusts. or business determination is made at
Treatment of capital gains and los- • Form 990-T, Exempt Organization that entity's level.
ses. Losses from sales or exchanges Business Income Tax Return (and proxy
of capital assets are not included in the tax under section 6033(e)). Ordering Rules
calculation of the total deductions from
First, apply the at-risk rules; next, apply
your trades or businesses. Definitions the passive activity loss rules; and then
Gains from sales or exchanges of apply the excess business loss rules.
capital assets should not exceed the Excess business loss. An excess
lesser of capital gain net income limited business loss is the amount by which See the Instructions for Form 6198, At-
to only gains and losses attributable to a the total deductions (computed without Risk Limitations. Also, see Pub. 925,
trade or business, or capital gain net regard to any deduction allowed under Passive Activity and At-Risk Rules.
income. section 172 or 199A) from your trades Farming losses. Taxpayers with
or businesses are more than your total losses from a farming business must
gross income or gains from your trades apply the excess business loss
Purpose of Form or businesses, plus the threshold limitation before carrying any NOLs
The Tax Cuts and Jobs Act limited the amount. Such excess losses should be back 2 years. See the Instructions for
amount of losses from the trades or determined without regard to any Form 1045, Application for Tentative
businesses of noncorporate taxpayers deductions, gross income, or gains Refund.
that the taxpayers can claim each year. attributable to any trade or business of
Taxpayers can’t deduct an excess performing services of an employee. Farming and nonfarming losses. If
business loss (see Definitions, later) in you incur both farming and nonfarming
the current year. However, the excess Threshold amount. For 2022, the business losses that are more than the
business loss is treated as a net threshold amount is $270,000 threshold amount (see Definitions,
operating loss (NOL) carryover. See ($540,000 for married taxpayers filing a earlier), you must allocate the threshold
Pub. 536, Net Operating Losses (NOLs) joint return). These amounts are amount first to the farming losses to the
for Individuals, Estates, and Trusts, for indexed for inflation. extent you have an NOL.
more information on NOL carryovers. Treatment of capital gains and los-
Use Form 461 to figure the excess ses. Losses from sales or exchanges Transition Rules
business loss. See Who Must File and of capital assets are not included in the If you had losses or deductions that
the instructions for Line 16, later, to find calculation of the total deductions from were limited under other provisions of
your trades or businesses. the Internal Revenue Code in prior tax

Aug 19, 2022 Cat. No. 71453Z

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years, those losses or deductions are Line 5 Losses from sales or exchanges of
included in figuring the amount, if any, of Enter any supplemental income or loss capital assets are not included in the
your excess business loss in 2022. reported on a Schedule E, such as calculation of trade or business
income from rental real estate, royalties, deduction. Such amounts included on
Additional Information partnerships, S corporations, estates, Line 3 should be added back here to
See the following publications for more trusts, REMICs, etc. This is reported on remove it from the computation.
information about the items in these Schedule 1 (Form 1040), line 5; Form Line 12
instructions. 1041, line 5; Form 1041-QFT, Part II, Subtract line 11 from line 10. The
• Pub. 225, Farmer’s Tax Guide. line 4; or Form 1041-N, Part II, line 4. resulting figure is your gain or loss that’s
• Pub. 536, Net Operating Losses
(NOLs) for Individuals, Estates, and Line 6 not from a trade or business. Use this
Trusts. Enter any farm income or loss reported amount in Part III to figure your excess
• Pub. 925, Passive Activity and on Schedule 1 (Form 1040), line 6; business loss. See Definitions, earlier.
At-Risk Rules. Form 1041, line 6; Form 1041-QFT, Part
II, line 4; or Form 1041-N, Part II, line 4. Part III—Limitation on
Losses
Specific Instructions Line 7
Use Part III to apply the threshold
Joint returns. Complete one Form 461 Leave line 7 blank. limitation and figure the excess
containing all the information for both Line 8 business loss. See Definitions, earlier.
spouses.
Enter any other trade or business Line 14
Amended returns. Attach Form 461 to income, gain, or loss not reported on Add lines 9 and 13. The resulting figure
any applicable amended returns. lines 1 through 7 that you reported on can be a positive or negative number.
your tax return.
Part I—Total Income/Loss Line 16
Line 9
Items If the resulting figure on this line is a
Combine all the entries from lines 1 negative amount, then it’s your excess
Use Part I to report all the income and through 8 on line 9. The resulting figure business loss. See Definitions, earlier.
losses reflected on your applicable tax can be a positive or negative number. Although it’s a loss, you will report the
return. If you’re filing a return other than
Form 1040 or 1040-SR, see the excess business loss adjustment as a
instructions below for the specific line Part II—Adjustment for positive number on the “Other income”
that’s an equivalent to the line on Form Amounts not Attributable line on your tax return and enter “ELA”
on the dotted line. The “Other Income”
1040 or 1040-SR. If the line instructions to Trade or Business
lines are located on the following lines
don’t reference a form listed under Who Use Part II to report the income, gain, or based on the type of tax return.
Must File, earlier, then it’s not loss from your tax return that’s not from Schedule 1 (Form 1040), line 8p.
•
applicable. a trade or business. The information will Form 1041, line 8.
•
Line 1 then be used to figure the excess Form 1041-QFT, Part II, line 4.
•
business loss. See Definitions, earlier.
Leave line 1 blank. • Form 1041-N, Part II, line 4.
Line 10 • Schedule A (Form 990-T), Part I,
Line 2 line 12 (applicable to trusts only).
Enter the combined amount of income
Enter any business income or loss or gain you reported on lines 1 through You’ll need to keep a record of
reported on Schedule 1 (Form 1040), 8 above that’s not from a trade or your excess business loss from
line 3, or Form 1041, line 3. business. See Definitions, earlier. If you RECORDS each tax year because it’s
Line 3 filed a tax return other than a Form treated as an NOL carryover. See Pub.
Enter any capital gains or losses 1040, see the specific line references 536, Net Operating Losses (NOLs) for
reported on Form 1040 or 1040-SR, for the tax return in the specific line Individuals, Estates, and Trusts for more
line 7; Form 1040-NR, line 7; Form instructions in Part l, earlier. information on NOL carryovers and
reporting NOLs on future tax year
1041, line 4; Form 1041-QFT, Part II, Line 11 returns.
line 3; or Form 1041-N, Part II, line 3. Enter the combined amount of losses or
Losses from sales or exchanges of deductions you reported on lines 1
capital assets are not included in the through 8 above that’s not from a trade Privacy Act and Paperwork Reduc-
calculation of the total deductions from or business. See the definition of a trade tion Act Notice. We ask for the
the taxpayer’s trades or businesses. So or business, earlier. If you filed a tax information on this form to carry out the
any such amounts included here in return other than a Form 1040, see the Internal Revenue laws of the United
Line 3 should be added back on line 11 specific line references for the tax return States. We need this information to
to remove them from the computation. in the specific line instructions in Part l, ensure that you’re complying with these
earlier. laws and to allow us to figure and collect
Line 4 the right amount of tax. Our legal right to
Although losses and deductions
Enter any other gains or losses reported ask for the information requested on this
are usually entered as negative
on Schedule 1 (Form 1040), line 4; CAUTION! form is sections 6001, 6011, 6012(a),
figures on other forms or
Form 1041, line 7; Form 1041-QFT, Part and 6109 and their regulations. If you
worksheets, enter them as a positive
II, line 4; or Form 1041-N, Part II, line 4. don’t provide this information, or you
figure on this line. provide incomplete or false information,
you may be subject to penalties.

-2- Instructions for Form 461 (2022)

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You’re not required to provide the Columbia, and U.S. commonwealths under OMB control numbers 1545-0074
information requested on a form that’s and possessions to carry out their tax and 1545-0123 and is included in the
subject to the Paperwork Reduction Act laws. We may also disclose this estimates shown in the instructions for
unless the form displays a valid OMB information to other countries under a their individual and business income tax
control number. Books or records tax treaty, to federal and state agencies return. The estimated burden for all
relating to a form or its instructions must to enforce federal nontax criminal laws, other taxpayers who file this form is
be retained as long as their contents or to federal law enforcement and shown below.
may become material in the intelligence agencies to combat
administration of any Internal Revenue terrorism. Preparing the form. . . . . . . . 23 min.
law. Generally, tax returns and return
information are confidential, as required The time needed to complete and file If you have suggestions for making
by section 6103. However, we may give this form will vary depending on this form simpler, we would be happy to
this information to the Department of individual circumstances. The estimated hear from you. See the instructions for
Justice for civil and criminal litigation, burden for individual and business your income tax return.
and to cities, states, the District of taxpayers filing this form is approved

Instructions for Form 461 (2022) -3-

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