Individual Loss Limitation Rules

This chapter explains why an economic loss does not always become a current tax deduction. REG expects candidates to separate the loss-limitation layers and determine whether the loss is deductible now, suspended, or permanently disallowed.

In This Chapter

• At-Risk and Material Participation Rules explains the first set of limitations on using losses.
• Passive Losses and Rental Real Estate Activities covers the passive-loss framework and its major exceptions.
• Suspended Losses Released on Disposition explains when deferred losses can finally be recognized.
• Hobby Losses and Other Nondeductible Items addresses items that fail because the activity lacks the right tax character.

How to Use This Chapter

• Read this chapter when you can compute a loss but are unsure whether the taxpayer may use it.
• Focus on the order of the limitation rules and what facts move an activity into or out of passive treatment.
• Return here whenever a REG question involves basis, at-risk amount, participation, and disposition in the same scenario.

In this section

• At-Risk and Material Participation Rules
  How at-risk amounts and participation facts limit individual loss deductions.
• Passive Losses and Rental Real Estate Activities
  Passive activity loss limits, rental real estate exceptions, real estate professional rules, and suspended losses.
• Suspended Losses Released on Disposition
  When complete taxable disposition releases passive or at-risk suspended losses.
• Hobby Losses and Other Nondeductible Items
  Profit-motive factors, hobby loss limits, and other individual deductions that may be disallowed.