Summary Even after you clear the at risk and passive activity hurdles the IRS sets one more gate for non corporate taxpayers. Section 461 caps the total business loss you can use in a single tax year. Any amount above the cap becomes a net operating loss that carries forward to future years.
What the cap is
Section 461 applies to individuals trusts and estates that own pass through businesses such as partnerships. For tax year 2025 the cap is approximately $313,000 for single filers and $626,000 for married filing jointly. The limit is indexed each year for inflation.
How the rule works
First net all business income and losses including your share from Craft Pod and any other pass through entities
Compare the net result to the annual cap
Deduct up to the cap in the current year
Convert any excess to a net operating loss carryforward subject to the standard eighty percent taxable income limit in future years
Interaction with at risk and passive rules
Losses must clear the gates in this order
At risk limitation section 465
Passive activity limitation section 469
Excess business loss cap section 461
If a loss is limited by either of the first two gates it never reaches the section 461 calculation. Only the amount that survives those tests is compared with the cap.
Craft Pod impact
Bonuses from first year aircraft depreciation can drive sizeable paper losses. Cash contributors with high outside basis may see six figure losses flow through. If your total business losses after the at risk and passive tests exceed the cap the extra portion simply becomes a net operating loss carryforward. You do not lose the deduction; you just use it later.
Example
Scenario | Single Filer with Cash Contribution |
Outside basis | $1,000,000 |
Passive and at risk allowed loss from Craft Pod | $600,000 |
Other business income | $50,000 |
Net business loss | $550,000 |
Section 461 limit for 2025 | $313,000 |
Allowed current year deduction | $313,000 |
Excess carried forward as NOL | $261,000 |