U.S. · Tax forms
Form 4562 line 11, business income limitation.
Who figures it how, why line 12 can be smaller than line 9, and where the disallowed part goes.
Line 11 (“Business income limitation. Enter the smaller of business income (not less than zero) or line 5”) caps the section 179 deduction at your taxable income from businesses you actively conduct. Line 12 is lines 9 and 10 added, but never more than line 11. Whatever the cap blocks is carried to line 13.
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Result
What the 2025 Form 4562 says
| Item | Meaning | What the IRS says |
|---|---|---|
| Individuals | Smaller of line 5 or active business taxable income | 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 (Form 1040, line 1a). Do not reduce it by unreimbursed employee business expenses. If married filing jointly, combine both spouses’ amounts |
| Partnerships | Smaller of line 5 or the partnership’s business items | The partnership’s total items of income and expense described in section 702(a) from any trade or business it actively conducted, other than credits, tax-exempt income, the section 179 expense deduction, and guaranteed payments under section 707(c) |
| S corporations | Smaller of line 5 or the S corporation’s business items | The corporation’s total items of income and expense described in section 1366(a) from any trade or business it actively conducted, other than credits, tax-exempt income, the section 179 expense deduction, and the deduction for compensation paid to shareholder-employees |
| Other corporations | Smaller of line 5 or taxable income before certain deductions | Taxable income before the section 179 expense deduction, net operating loss deduction and special deductions, excluding items not derived from a trade or business actively conducted by the corporation |
| “Actively conducts” | Meaningful participation | 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 |
| Amount over the limit | Carried forward on line 13 | The form’s line 13 is “Carryover of disallowed deduction to 2026. Add lines 9 and 10, less line 12” |
| Another taxable-income limit applies | See Pub. 946 | If you have to apply another Code section that has a limitation based on taxable income, Pub. 946 explains how to apply the business income limitation |
Where line 11 sits in Part I
Part I is a short chain. Line 5 is the dollar limit for the year. Line 9 is the smaller of line 5 or the total elected cost on line 8. Line 10 brings in last year’s disallowed carryover. Line 11 is the income cap. Line 12 adds lines 9 and 10 but cannot exceed line 11, and line 13 is what is left over for next year.
What “not less than zero” means
The form wording says business income, not less than zero. A business loss does not make line 11 negative; the floor is zero, which means line 12 is zero and everything elected carries to line 13.
Why it is computed before the deduction
The instructions define the income without regard to the section 179 deduction itself, to the deduction for one-half of self-employment tax, and to any net operating loss deduction. The cap measures what the business earned before those items, not after them.
More than one business
The instructions say the limits on lines 5 and 11 apply to the taxpayer, not to each separate business. If you have several, you may allocate the allowable deduction among them using a “Summary” Form 4562, then enter each business’s share on its own line 12.
Worked example
Dana is a sole proprietor with no wages. Assume line 5 is $2,500,000. Her active business taxable income, figured before any section 179 deduction, is $60,000, so line 11 is $60,000. She elected $80,000 of equipment, so line 9 is $80,000, and she has no carryover on line 10. Line 12 is the smaller of $80,000 or $60,000, which is $60,000. Line 13 is $80,000 plus $0 less $60,000, so $20,000 carries to the next year. Names and figures are made up.
More line pages in this set
Related lines: Form 4562 Line 1, Form 4562 Line 3.
Sources
- Instructions for Form 4562 (2025): the line-by-line instructions on this page. Page last reviewed or updated April 30, 2026. Read November 2, 2026.
- Form 4562, Depreciation and Amortization (2025): the printed line wording and arithmetic on the form. Read November 2, 2026.
Tax year 2025 form and instructions. Line labels were read from the IRS PDF posted on the date read; line numbers, dollar limits and cutoff years change between editions, so check them against the form for your tax year. The cap rules differ for individuals, partnerships, S corporations and other corporations; this page quotes the 2025 wording for each. Names in worked examples are made up.
Frequently asked questions
What is Form 4562 line 11?
It is the business income limitation for the section 179 deduction: the smaller of your business income (not less than zero) or line 5, figured under the rules for your type of taxpayer.
Does line 11 include my W-2 wages?
For individuals, yes. The instructions say to include all wages, salaries, tips and other compensation earned as an employee (Form 1040, line 1a) and not to reduce it by unreimbursed employee business expenses.
What happens to the amount line 11 blocks?
It is not lost. Line 13 carries the disallowed part to the next year, and the next year’s Form 4562 line 10 brings it back in.
Do passive investors count?
No. The instructions say a mere passive investor is not considered to actively conduct a trade or business; you must meaningfully participate in management or operations.
Where do I read the official rules?
Part I of the Instructions for Form 4562, under the heading for line 11, and Pub. 946 when another taxable-income limit also applies.
Not tax advice
This page summarizes IRS instructions, mostly written for the people who prepare the form, and is not tax, legal or financial advice. A CPA or an enrolled agent can confirm what a line means for your return. Everything runs in your browser; nothing you enter is sent anywhere.