Tax rules that limit an investor's deductible losses from an investment to the amount actually invested. Without these rules, investors could claim loss deductions for amounts they are not personally liable for — i.e., for amounts as to which they are not at-risk.
A set of income tax rules limiting the deductibility of losses in an activity to the amount that a taxpayer has at risk in the activity. These rules are intended to prevent the utilization of losses in situations where the taxpayer is not economically at risk due to nonrecourse loans for which he or she is not personally liable, stop-loss agreements, and similar arrangements. Loss deductions are limited to the amount of the taxpayer's cash contribution, the adjusted basis of other property that he or she contributed to the activity, and any amount borrowed for use related to the activity if the taxpayer has personal liability for repayment or the taxpayer pledges property (other than property used in the activity) as security for repayment of the amounts borrowed.
A tax rule that limits an investor's tax deduction for losses in certain types of businesses to the amount of capital that the investor has at risk in the business.
A taxpayer may deduct losses and obtain credits from a real estate investment only to the extent that the taxpayer is “at-risk” for the investment. The amount that a taxpayer is “at-risk” is generally the sum of cash or property contributions to the project plus any borrowed money for which the taxpayer is personally liable, including certain borrowed amounts secured by the property used in the project. In addition, in the case of holding real property, the amount “at-risk” includes qualified non-recourse financing borrowed from certain financial institutions or government entities. For more information, refer to Passive Activity and At-Risk Rules IRS Publication 925 (pdf file, 234 kb); At-Risk Limitations IRS Form 6198; (pdf file, 19 kb) Instructions for At-Risk Limitations (pdf file, 62 kb).
Tax laws that apply to any activity carried on as a trade or business or for production of income. In general, financial losses from such activities are only allowable as tax deductions to the extent of the taxpayer's actual financial risk from the activity. Losses that exceed the 'at-risk' amount are not deductible.
Special rules limiting the taxpayer's deductible business, partnership, S corporation, or real estate loss to cash invested plus debt he or she is legally obligated to pay and the adjusted basis of any property contributed.
Rules that limit the amount of loss you may deduct to the amount you risk losing in the activity.
Rules that limit an investor's deductible losses from an investment to the amount invested. Complications arise when investors finance their investment through loans that they are not personally on the hook for (nonrecourse financing). Without these rules, investors could raise their deduction limit considerably without being at-risk for the actual loss.
Rulings that losses can only be deducted for tax purposes to the degree of risk and are restricted to the cash investment and debt for which the taxpayer is personally liable.