You can reduce income reported on your return by deducting allowable losses from either of these:

• A business
• Other for-profit activity

The deduction is limited to the money you have at risk in the activity.

The at-risk amount is usually equal to the combined total of:

• Money and adjusted basis of property you contributed to the activity
• Amounts you borrow for use in the activity, which you’re personally liable to repay
• Fair market value of property you pledged as security for the debt. You can’t count property you contributed to the activity.

The at-risk amount usually doesn't include:

• Amounts guaranteed against loss through nonrecourse financing
• Amounts from other loss-limiting arrangements you’re not personally liable for

The at-risk rules apply to:

• Individuals, including partners and S corporation shareholders
• Estates and trusts
• Certain closely held corporations, other than S corporations

If some of the money you invested isn't at risk, use Form 6198 to determine your allowable loss.

To learn more, see IRS Publication 925.