At-Risk Rules (Section 465)
At-risk rules limit business loss deductions to the amount economically at risk, preventing deductions for losses funded by nonrecourse financing.
Exam Tip
At-risk rules apply BEFORE passive activity rules. Qualified nonrecourse (real estate) counts as at risk. Form 6198.
What are At-Risk Rules?
Cannot deduct more than your actual economic investment.
Amount At Risk Includes
- Cash contributions
- Recourse debt (personally liable)
- Qualified nonrecourse financing (real estate)
Does NOT Include
- Nonrecourse debt (not personally liable)
- Guarantees without true liability
Order of Application
At-risk rules apply BEFORE passive activity rules.
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