What Is the At-Risk Rule?

The at-risk rule limits the amount of business losses you can deduct to the amount you actually have at risk of losing — essentially, the money or property you've personally invested or borrowed for which you're personally liable. If your share of a business loss exceeds your at-risk amount, the excess loss is suspended and carried forward to future years when your at-risk amount increases. At-risk amounts include cash you contributed, the adjusted basis of property you put in, and certain amounts you personally borrowed — but generally not non-recourse loans, where the lender can only look to the property (not you personally) for repayment. The at-risk rule is separate from and in addition to the passive activity loss rules — both must be satisfied before a loss can flow through to reduce your personal taxable income. The rule prevents investors from deducting losses that exceed their actual economic stake in a venture.