Excess Business Loss Limit 2027: $264,000 ($528,000 Joint)

The excess business loss limit is the rule that decides how much of a bad business year you can use right away, and the 2025 tax law rewrote it. If you own a pass-through business (a sole proprietorship, a partnership, an S corporation) and it loses a lot of money, section 461(l) puts a ceiling on how much of that loss you may deduct against your other income in the year it happens. The short answer: the 2027 ceiling is $264,000 for single filers and most others, and $528,000 for married couples filing jointly. The IRS made it official on November 5, 2026, in Revenue Procedure 2026-35, section 3.33, and it matched our projection.

The numbers by year

The joint figure is always twice the single one. The tracker we keep for all the 2027 figures that depend on the same method is the IRS 2027 inflation adjustments tracker.

Why it dropped from $313,000 to $256,000

The odd thing about the 2026 figure is that it went down. A drop of $57,000 for single filers looks like a mistake until you read what Congress did. The cause is Public Law 119-21, the law better known as the One Big Beautiful Bill Act, signed on July 4, 2025. Section 70601 of that law changed two things about section 461(l).

First, it removed the expiration date. The limitation had been written to apply only to years “before January 1, 2029”, and the new law deleted that phrase, so the limit is permanent. It applies to tax years beginning after December 31, 2026 under the amendment.

Second, it changed how the dollar amount is indexed. The statute starts from $250,000 and adjusts it for inflation using the method in section 1(f)(3), which compares a recent price index with the index of a base year. Under the old rule, the base year was 2017. For years beginning after December 31, 2025, the law substitutes 2024 in place of 2016, which moves the base year for this limit from 2017 to 2024. In plain terms, the $250,000 is now treated as a figure in 2024 dollars rather than 2017 dollars. The inflation between 2017 and 2024 no longer counts, and that is why 2026 ($256,000) sits so far below 2025 ($313,000).

The practical lesson is that someone who budgeted around the 2025 figure and expected only a slight rise has a larger disallowed loss than they planned. The same $400,000 loss that left an $87,000 excess under the 2025 single threshold of $313,000 would leave $144,000 under the 2026 one.

How the 2027 figure was computed

The indexing method averages the chained CPI-U (C-CPI-U, Bureau of Labor Statistics series SUUR0000SA0) over the twelve months that end on August 31 of the prior year, then divides by the same average for the base period. The base for the new rule is 2024, defined as the average from September 2023 through August 2024, which is 173.0158. The window for 2027 is September 2025 through August 2026, and the August 2026 index was published in September, so every month that matters is in.

There is one gap. The Bureau did not publish a CPI for October 2025 because of the federal government shutdown. There are two ways to handle it, and we computed both. Omitting the month, the average over the remaining months is 182.8565, which scales $250,000 to $264,219.25. Imputing it as the average of September and November, the average is 182.6293, which gives $263,891.07. Section 461(l)(3)(C) rounds to the nearest multiple of $1,000, and both results round to $264,000. As a control, we applied the same method to 2026 and got $256,054.36, which rounds to $256,000, the figure published in Rev. Proc. 2025-32. The joint amount is 200 percent of the adjusted figure, $528,000.

The IRS published the official 2027 number on November 5, 2026, in Revenue Procedure 2026-35, section 3.33: $264,000, and $528,000 on a joint return. It matched this page. The IRS averaged the eleven published months and left October 2025 out, but both treatments rounded to $264,000.

How the limit works

The statute in section 461(l)(3)(A) and (B) defines an excess business loss as the amount by which the taxpayer’s total deductions attributable to trades or businesses exceed the total gross income and gains from those businesses plus the threshold. In symbols, using the 2027 single amount:

excess business loss = business deductions − (business gross income and gains + $264,000)

Several details sit inside that definition.

• Whose losses count. The limit applies to taxpayers other than corporations. For partnerships and S corporations, it is applied at the level of the partner or shareholder under section 461(l)(4), not at the entity level. A partner or shareholder therefore adds up the share of every business he or she holds.
• What is excluded from the deductions. The calculation does not count net operating loss deductions under section 172 or the qualified business income deduction under section 199A.
• Wages do not count. Income and deductions from the “business” of being an employee are ignored. Your W-2 salary neither adds to the gross income side nor makes your loss easier to deduct in this formula.
• Capital items. Capital losses are not business deductions for the calculation. Capital gains count as business income only up to the lesser of the capital gain net income from the businesses or the total capital gain net income.
• The farm loss rule steps aside. While section 461(l) is in force, the separate excess farm loss limit in section 461(j) does not apply, according to section 461(l)(1)(A).

The calculation is made on Form 461, Limitation on Business Losses. The IRS page for Form 461 has the current form and instructions.

What happens to the disallowed part

A disallowed excess business loss does not vanish. Under section 461(l)(2), it is treated as a net operating loss (NOL) carried to the following year. There it sits with other NOLs, and a net operating loss from the years after 2017 can offset only up to 80 percent of taxable income under section 172(a)(2). The consequence is that the carryover may reduce next year’s tax, but it will not bring next year’s taxable income to zero by itself.

Three examples

A single filer with a large S corporation loss. In 2027 an S corporation passes through a net loss of $400,000 to its sole shareholder, who has $500,000 of salary and investment income. The excess business loss is $400,000 − ($0 + $264,000) = $136,000. The shareholder deducts $264,000 against the other income on the 2027 return, and the remaining $136,000 becomes an NOL carryover into 2028. Under the 2026 threshold the excess would have been $144,000, so the higher 2027 amount saves $8,000 of loss from deferral.

A married couple filing jointly with a very large loss. They have a net business loss of $600,000. The excess is $600,000 − $528,000 = $72,000, which becomes an NOL for 2028.

The same couple, with a second profitable business. Add $150,000 of profit from another business. The aggregate net loss is now $600,000 − $150,000 = $450,000, which is below the $528,000 threshold, so nothing is limited and the entire loss is deductible in 2027.

The third example shows why the aggregate matters. Profits from one business enter the gross income side of the formula, so owning a profitable business next to a losing one lowers the loss that counts.

Reading the threshold as a planning number

It helps to think of the threshold as the amount of net business loss you can fully use before the limit starts to bite. For a single filer in 2027 that is $264,000 of loss beyond the business’s own gross income and gains, and for a joint return it is $528,000. Anything under those figures is deducted in the year as usual; anything over them moves to the following year as an NOL. In the first example above, the shareholder’s $500,000 of salary and investment income does not raise the ceiling, because wages are outside the formula. What that income does is give the allowed $264,000 something to be deducted against.

The year-to-year movement is worth keeping in view too. Between 2026 and 2027 the single threshold rises $8,000, from $256,000 to $264,000, and the joint threshold rises $16,000, from $512,000 to $528,000. That is a small cushion compared with the $57,000 and $114,000 that were lost in the step from 2025 to 2026. A single filer whose net business loss sits between $256,000 and $264,000 moves from partly limited in 2026 to fully deductible in 2027; for larger losses, the disallowed part shrinks by $8,000, or $16,000 on a joint return.

How this connects to other 2027 numbers

The excess business loss limit interacts with the deductions you are probably also planning around. The qualified business income deduction is excluded from the calculation, so you can read our QBI deduction 2027 threshold projection separately. Equipment purchases that produce a large first-year deduction can create the very loss that this limit catches, which is worth keeping in mind next to the section 179 limit for 2027. And the brackets that determine what a deducted loss is worth are in the 2027 tax brackets and standard deduction projection.

What could still change

Nothing for 2027. The figure is official, and the October 2025 question did not matter, since both treatments led to $264,000.

Sources

• Rev. Proc. 2026-35, § 3.33 — irs.gov/pub/irs-drop/rp-26-35.pdf, released November 5, 2026
• IRS news release IR-2026-133, November 5, 2026 — irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2027-taxpayers-continue-to-benefit-from-the-working-families-tax-cuts
• 26 U.S.C. § 461 (limitation on losses, § 461(l)) — law.cornell.edu/uscode/text/26/461
• Rev. Proc. 2025-32 (2026 inflation adjustments) — irs.gov/pub/irs-drop/rp-25-32.pdf
• Rev. Proc. 2024-40 (2025 inflation adjustments) — irs.gov/pub/irs-drop/rp-24-40.pdf
• Bureau of Labor Statistics, C-CPI-U (series SUUR0000SA0) — api.bls.gov/publicAPI/v2/timeseries/data/SUUR0000SA0
• IRS, About Form 461 — irs.gov/forms-pubs/about-form-461