Turning Losses into Tax Opportunities in 2025

At Visibility  we know that the word “loss” can cause concern for taxpayers—but it shouldn’t necessarily! In fact, tax losses are not just manageable; they can be powerful tax planning levers when understood and used correctly.

Whether it's a net operating loss, passive activity loss, or investment expense, the key lies in knowing how to apply and structure these losses for long-term tax benefits. Below, we’ll walk you through the five primary types of losses, the impacts of tax reform, and how savvy investors and businesses can unlock powerful savings.

Here are some key types of losses you could leverage in 2025:

1. Net Operating Losses (NOLs)

A Net Operating Loss (NOL) occurs when a taxpayer's allowable tax deductions exceed their taxable income within a tax year (usually as a result of business or investment losses).

The treatment of Net Operating Losses depends on when the loss was incurred:

• Losses before 2018 must be carried back two years, and then carried forward..

• Losses from 2018 onward may be carried forward indefinitely.

The 2017 Tax Cuts and Jobs Act introduced the 80% limitation rule: NOL deductions are now limited to 80% of taxable income in a given year. This rule applies only to NOLs arising in tax years beginning after December 31, 2017. Read more here: https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-a-comparison-for-businesses

C Corporation Planning Tip: Be cautious of overzealous tax planning that creates idle NOLs. Instead of trying to zero out income, consider reducing payroll or distributing dividends to use losses and deliver low-tax income at the 21% corporate rate.

2. Passive Losses

Passive losses refer to losses from business activities in which the taxpayer has limited or no direct participation. These are typically associated with rental real estate or limited partnerships.

Passive activity losses are typically suspended unless:

• The taxpayer materially participates in the activity (proven through time logs or calendars), and

• The taxpayer has an at-risk basis in the activity.

These losses can only be used to offset passive income unless reclassified as active through proper documentation and substantiation.

Reach out to your Visibility team regarding the detailed records of participation which are essential for audit protection and deduction eligibility. Learn more here: https://www.irs.gov/taxtopics/tc425

3. Investment Expenses

Investment expenses are the costs associated with managing and maintaining investment income, such as advisor fees, subscriptions, and office expenses.

Investment-related expenses are no longer deductible at the individual level due to the Tax Cuts and Jobs Act and follow-up legislation in 2025, but when held within a business entity “ordinary and necessary business expenses” may be fully deductible (as explained in Section 162). Your Visibility Team can help ensure you have the correct entity structure and bookkeeping practices to be eligible to take deductions for the losses that come with investing in your business. 

4. Capital Losses

A capital loss occurs when an investment or asset is sold for less than its original purchase price.

One of the most misunderstood elements of the tax code, capital losses often feel frustrating to clients who’ve suffered large losses in the market—sometimes in the hundreds of thousands or more—only to discover they can’t deduct the full amount in the year of loss.

Capital losses remain limited to $3,000 per year against ordinary income ($1,500 if married filing separately or single), but they can offset capital gains without limit. Any unused losses carry forward indefinitely.

So for tax planning purposes you can coordinate transactions to create gains that are offset by the capital losses. For example, if you have a large capital loss carryforward and sell a rental property with a substantial unrealized gain, the gain will be offset by your capital loss- meaning that money could be reinvested tax-free. 

Additionally, capital losses can be used to offset gains on a personal residence exceeding the Section 121 exclusion ($250,000 single / $500,000 married).Learn more here: Tax Topics

5. Rental Real Estate

Rental real estate losses result from expenses exceeding rental income. 

It is important to note that these are generally considered passive losses unless the taxpayer qualifies as a real estate professional. Read here to learn more about tax strategies available to real estate professionals.

How Visibility Can Help!

Set up a call with Visibility CFO & Tax Advisors today to learn how your “losses” may be turned into opportunities. From NOLs and capital losses to investment and passive activity limitations, we specialize in uncovering overlooked tax planning opportunities that will minimize your tax liability and unlock financial freedom.