The partnership computes and reports its items, but the partner determines personal deduction limits. Basis, at-risk and passive activity restrictions can suspend losses before Section 461(l) is reached. Partners with interests in several businesses then aggregate the eligible remaining business income and deductions for the excess business loss calculation. Each partnership does not provide a separate threshold.
Aggregate the partner's businesses after earlier restrictions
The 2026 excess business loss threshold is $256,000 for nonjoint filers and $512,000 for joint filers. Employee wages are excluded from business income for this calculation. The excess is disallowed for the current year and treated as an NOL carryforward, with future use governed by the NOL rules. Maintain separate records for basis, at-risk and passive suspensions because those carryforwards have different mechanisms.
Worked planning example
Assume a joint filer has a $900,000 eligible business loss from one partnership after earlier limits and $200,000 of eligible income from another business. Net business loss is $700,000. Subtracting the $512,000 threshold leaves a simplified $188,000 excess. Salary does not increase that threshold or the eligible business income. The example excludes other adjustments and does not calculate final taxable income or next-year NOL usage.
Records to bring to the review
- Complete earlier partner-level limitation schedules.
- Gather eligible items from all businesses.
- Use the correct year and filing status threshold.
- Record each carryforward by its governing rule.
Can another business's income change the result?
Eligible business income can reduce the net business loss in the aggregate computation. Employee wage income is excluded from that calculation.
Read this alongside the AE book and published cases
This companion guide provides additional education for readers of Partnership Tax Strategies. It is not a quotation or chapter excerpt. The worked example is hypothetical and should not be confused with a reported AE client outcome.
Use the AE Tax Advisors multi entity case-study collection to compare the assumptions and supporting records behind published reports. Reported results are publisher statements, not independently audited results or a prediction for another taxpayer. The case-study methodology explains those limits.
Primary source and next reading
IRS guidance for this topic. IRS publications can cover earlier return years; check applicable current-year instructions, law and state treatment before implementation.
Read the complete companion reading sequence or browse the existing learning library. For the broader loss framework, read how the 2026 excess business loss limitation works.
General federal tax education. Actual outcomes require complete facts, applicable law and a taxpayer-specific review. A deduction amount is not the same as tax saved or cash available.
Discuss your planning facts with AE Tax Advisors
Bring the records identified in this guide to a discovery conversation with AE Tax Advisors. Start with the decision you need to make, the year affected and the assumptions that need verification.