Which of the following scenarios describes a situation where the at-risk rules would NOT apply?
Understand the Problem
The question asks us to identify which business structure is NOT subject to the at-risk rules. The at-risk rules limit the amount of losses a taxpayer can deduct to the amount they have at risk in an activity. We need to consider which entity types are generally subject to these rules and which might have exceptions.
Answer
The at-risk rules did not apply to real estate until 1986.
Based on the search results, the at-risk rules did not apply to real estate until 1986, where nonrecourse financing predominates.
Answer for screen readers
Based on the search results, the at-risk rules did not apply to real estate until 1986, where nonrecourse financing predominates.
More Information
The at-risk rules limit the amount of losses that taxpayers can deduct to the amount they risk in an activity. These rules prevent taxpayers from deducting losses exceeding their actual economic investment in an activity.
Tips
It's easy to confuse the passive activity rules with the at-risk rules, but they are distinct concepts. The at-risk rules limit losses to the amount the taxpayer could actually lose in an activity, while the passive activity rules limit losses from businesses where the taxpayer doesn't materially participate.
Sources
- Calculating an LLC member's amount at risk - The Tax Adviser - thetaxadviser.com
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