Form 4562 - Business Income Limitation

Although the description for Line 11 of Form 4562 Depreciation and Amortization is "Business income limitation," the calculation for this line is not strictly based on your business income (loss).

Per IRS Instructions for Form 4562, on page 4:

Line 11

The total cost you can deduct is limited to your taxable income from the active conduct of a trade or business during the year. You are considered to actively conduct a trade or business only if you meaningfully participate in its management or operations. A mere passive investor is not considered to actively conduct a trade or business.

Note. If you have to apply another Code section that has a limitation based on taxable income, see Pub. 946 for rules on how to apply the business income limitation for the section 179 expense deduction.

Individuals. Enter the smaller of line 5 or the total taxable income from any trade or business you actively conducted, computed without regard to any section 179 expense deduction, the deduction for one-half of self-employment taxes under section 164(f), or any net operating loss deduction. Also, include all wages, salaries, tips, and other compensation you earned as an employee (from Form 1040, line 1). Do not reduce this amount by unreimbursed employee business expenses. If you are married filing a joint return, combine the total taxable incomes for you and your spouse.

If this business income limitation pertains to a partnership, S-corporation, or other corporation, please see the instructions for additional information on calculating Form 4562, Line 11.

Note that any link in the information above is updated each year automatically and will take you to the most recent version of the document at the time it is accessed.