Limitations on Business Losses
Once you figure whether your business has sustained operating losses, you must then determine the extent to which you can deduct these losses. A number of limits apply that restrict full and immediate write-offs of business losses. For example, the hobby loss rules may limit deductions from certain business activities, as explained in Chapter 26. Not all of the rules that follow apply to all types of businesses, so only review those rules applicable to your company.
If you own a pass-through entity, business losses claimed on your personal return cannot exceed your tax basis in the company. Losses in excess of basis can be carried forward and used in future years to the extent of basis at that time. There is no time limit on these carryforwards.
PARTNERSHIPS AND LLCS
Basis is determined, in part, by the way in which a partner or member acquires his interest in the entity.