Definitions for "At-Risk Rules"
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.