at-risk rule
- A set of regulations established by the Tax Reform Act of 1976 that limit a taxpayer's ability to deduct losses from their income to the extent of their personal liability
- The at-risk rule prevents individuals from deducting more losses than they're personally liable for from their taxable income.
- Following the at-risk rule, the taxpayer could not claim the full amount of their investment loss because they weren't personally liable for the whole amount.
- Given the restrictions of the at-risk rule, a business owner was unable to use the full amount of losses from their company to lower their personal tax liability.
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