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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Related Terms
Passive Activity Loss Rules
Passive activity loss rules limit deduction of losses from activities without material participation to the extent of passive income, with suspended losses carried forward.
1031 Exchange
A 1031 exchange is a tax-deferred transaction under IRC Section 1031 that allows real estate investors to sell an investment property and reinvest the proceeds in a "like-kind" property while deferring capital gains taxes, provided strict IRS deadlines are met.
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