Preparing Your Tax Return(s) and Information Returns

Reporting Business Losses

Passive Activities and At Risk Rules

Generally, you are in a passive activity if you have a trade or business activity in which you do not materially participate during the tax year, or a rental activity. If you have a loss, you must determine your amount at risk in the activity.

In general, you can deduct passive activity losses only from passive activity income. You carry any excess loss forward to the following year or years until used, or until deducted in the year you dispose of your entire interest in the activity in a fully taxable transaction.

Form 6198 is used to figure:

• The current year profit (loss) from an at-risk activity for 2000 (Part I).
• The amount at risk for 2000 (Part II or Part III).
• The deductible loss for 2000 (Part IV).

The at-risk rules of section 465 limit the loss you can deduct to the amount of the loss or your amount at risk, whichever is less.

For more details, see Pub.925, Passive Activity and At-Risk Rules.
Activities that Are Not Passive Activities
AT-Risk Limits

Note: Corporations subject to the passive activity rules must use Form 8810, Corporate Passive Activity Loss and Credit Limitations.

Important References

Publication 925                   Passive Activity and At-Risk Rules
Form 8582                           Passive Activity Loss Limitations
Instructions Form 8582
Form 6198                           At-Risk Limitations
Instructions Form 6198
Form 8810                           Corporate Passive Activity Loss and Credit Limitations