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At-risk limitation on losses

If a taxpayer sustains losses in his business, there is a limitation on the amount of losses that he may deduct to amounts for which he is personally "at risk." The limitation is called the at-risk limitation on losses. Amounts at risk include money and property contributed to the activity and borrowed amounts for which the taxpayer is personally liable for repayment or has pledged property as security for repayment (recourse financing), I.R.C. §§ 465(b)(1), (2). The taxpayer is also at risk in regard to qualified nonrecourse financing, I.R.C. § 465(b)(6)(A). The "at risk" rule applies to losses incurred from real property placed in service by the taxpayer after December 31, 1986.

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