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.

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