Tax
At-Risk Rules (IRC §465)
Tax rules limiting deductible losses to the amount an owner has actually 'at risk' in the business: cash invested plus recourse debt they're personally liable for.
Section 465 prevents owners from deducting losses funded by non-recourse debt where they have no personal financial exposure. Most relevant to real-estate partnerships and equipment-leasing structures.
An owner's 'at-risk amount' starts at cash contributed, increases with allocable income and additional contributions, and decreases with distributions and allocable losses.
Disallowed losses don't disappear; they carry forward and become deductible if and when the owner has additional at-risk amount.
Common pitfalls
- Confusing basis (the §704(d) limit) with at-risk amount (the §465 limit); both apply, and the lower limit binds
- Including non-recourse debt in at-risk amount without checking the 'qualified non-recourse financing' carveout for real estate
- Not tracking at-risk amount separately by activity, which is required when an owner has multiple ventures
Related service
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Have a At-Risk Rules (IRC §465) situation in your business?
Federal, state, and local returns prepared and reviewed by a licensed CPA, with the planning done before year-end rather than after it.