When a tax provision becomes “permanent,” the natural assumption is that nothing about it is changing. For the excess business loss limitation, that assumption is wrong in a way that’s catching business owners off guard in 2026.
The excess business loss (EBL) limitation under Section 461(l) restricts how much business loss a non-corporate taxpayer can use to offset other income — wages, interest, dividends, capital gains. Under prior law, this limitation was scheduled to expire after 2028. The One Big Beautiful Bill Act removed that expiration date, making the limitation permanent.
At the same time, the law changed how the threshold is indexed for inflation, resulting in a lower 2026 threshold than the 2025 amount.
What Actually Happened
The Numbers
2025 vs. 2026 Reset: For 2025, the threshold sat at $313,000 for single filers and $626,000 for married couples filing jointly. Under the reset methodology, the 2026 thresholds drop to $256,000 (single) and $512,000 (married filing jointly) — a reduction of roughly $114,000 for joint filers, holding everything else constant.
That disallowed loss generally isn't lost. It is treated as a Net Operating Loss (NOL) carryover to subsequent years. NOLs arising after 2017 are generally subject to the 80% taxable-income limitation in future years.
Where This Bites Hardest
The limitation applies to business losses of noncorporate taxpayers and does not include income, deductions, or gains attributable to services performed as an employee. Where it can have a significant impact is on pass-through business losses combined with large first-year deductions, such as bonus depreciation.
Anyone modeling a large first-year deduction from a business or investment activity should run the numbers through the Form 461 calculation. The difference between the total business loss and the amount currently deductible can be significant under the lower 2026 threshold.