What Is the At-Risk Rule?

The at-risk rules limit the amount of business or investment losses you can deduct to the amount you've actually put at risk — your cash invested plus borrowed amounts you're personally liable for. You can't deduct losses that exceed your "at-risk amount." Any excess loss is suspended and can be used in future years when your at-risk amount increases. These rules work alongside passive activity rules — you must clear both hurdles to deduct a loss. They apply mainly to partnerships, S corporations, and rental real estate.