Get Department Of The Treasury Internal Revenue Service Instructions For Form 6198 At-risk Limitations

The at-risk rules prevent taxpayers from deducting more than their actual stake in a business. This usually means that for tax purposes, only money you're personally liable for is considered "at risk," and, therefore, tax deductible.

The amount that a taxpayer has at-risk is measured annually at the end of the tax year. An investor's at-risk basis is calculated by combining the amount of the investor's investment in the activity with any amount that the investor has borrowed or is liable for with respect to that particular investment.

The at-risk rules place a limit on the amount you can deduct as losses from activities. Generally, any loss from an activity (such as a rental) subject to the at-risk rules is allowed only to the extent of the total amount you have at risk in the activity at the end of the tax year.

In general, the at-risk rules apply to all trade or business or production of income activities. The income or loss of activities is treated separately or aggregated under special rules. Exceptions to the application of the at-risk rules are provided for equipment leasing activities of closely held corporations.

At-Risk Limits. Generally, your deductions cannot exceed the amount you have at risk. Roughly, an amount at risk is an amount you invested and could lose. An amount not at risk exists when there is a part of your investment basis that you are protected from losing.

At-Risk Rule Example If a taxpayer invests $100,000 in a rental real estate property and takes out a loan for $50,000, the taxpayer's at-risk amount would be $150,000 ($100,000 of their own money and $50,000 of borrowed funds secured by their own assets).

Schedule C Loss: At-Risk Rules If everything that has been invested in the company is from your own funds, and therefore any loss by the company comes out of your own pocket (and is not covered for you by someone else), then it is likely that all of the investment is at risk.