At-Risk Limits And Reported Income

 

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 these:

  • Money and the 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 (FMV) 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 figure your allowable loss.

To learn more, see Publication 925: Passive Activity and At-Risk Rules at www.irs.gov.

Related Topics

Related Resources

Exempt Interest Dividends

Learn more about tax exempt dividends and get tax answers at H&R Block.

For Pro Golfers, Tough Taxes Are Par for the Course

Professional golfer taxes can be complicated and confusing. Learn more about tricky golfer tax issues like travel deductions and residency rules with H&R Block.

What Gift of Equity Tax Implications Are There If I Buy a House Below Value?

When someone sells you property for less than full value, it’s considered a gift of equity. Let H&R Block explain why this might have tax implications.

What are the consequences if I withdraw money from my 401(k) or IRA?

Considering a withdrawal from your 401(k) or IRA due to the impacts from the coronavirus? Learn from tax experts at H&R Block’s what you should consider.