OBBB (allegedly) increases $3,000 capital loss deduction; makes EBL limit permanent

ChatGPT "read" the OBBB and hallucinated. EBL limit is here to stay.

Is the fire ChatGPT? Is it the One Big Beautiful Bill Act? Is it the Internal Revenue Code?

Like everyone in wealth management, I dutifully downloaded the text of H.R.1 - One Big Beautiful Bill Act 119th Congress (2025-2026), dumped it into ChatGPT, and prepared my groundbreaking, thought-leadership analysis.

I began with my punching bag, the §1211 $3,000 limitation on capital losses, which I’ve dubbed LOL3K.

GPT said OBBB updated the $3,000 limit, which was completely wrong.

The Future of Wealth Management

A simple CTRL+F search of OBBB revealed the nonsense above for what it was¹.

However, something material did change in OBBB…

The Limitation on Excess Business Losses (EBL) is permanent

OBBB makes the excess business loss limitation permanent. I found this using CTRL+F.

Investors in hedge funds that generate business losses, which offset active income (including wages²), must mind the limitation on excess business losses (EBL), which is now permanent.

This is relevant for investors expecting ordinary business losses above ~$300,000 (single) / ~$600,000 (married).

For example, if a fund allocates 10% in ordinary losses annually, a $3M (single) or $6M (married) investment could hit the EBL cap.

Disallowed amounts carry forward as net operating losses (NOLs), which can offset up to 80% of taxable income in future years.

EBL limitation is hard-coded into IRS Form 461. It is inflation-adjusted annually.

Here’s a primer on EBL, including an example.

Here’s AQR’s summary analysis on EBL.

Here’s AQR’s long analysis on EBL, which suggests some planning opportunities.

This is an interesting topic, and likely where advisers can add value. Stay tuned for more work on this…

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Vibe coding vs. slot machine

Source

These guys got a look at the George Costanza sleeping-under-the-desk Yankees bobblehead

Glorious

Have a great day.

1

GPT’s views are strongly stated but weakly held. Annoying.

2. Limitation on Trader Fund Losses under the CARES Act of 2020 March 3, 2021 - Nathan SosnerRoxana Steblea-Lora