Section 4: 22–32%R16
Loss Limitations: Basis, At-Risk, and Passive Activity
Exam Insight
A loss must survive three gates in order — basis, at-risk, then passive activity — before it ever reaches the return. Candidates who apply the gates out of order, or skip one, get the wrong deductible loss almost every time.
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What AICPA Wants You to Know
- 1Apply the three loss-limitation hurdles in the correct order: basis, at-risk, then passive
- 2Compute the deductible loss after each limitation and track the suspended amount
- 3Distinguish material participation from passive activity
- 4Apply the $25,000 active-rental-real-estate allowance and its MAGI phaseout
- 5Determine when suspended passive losses are freed on disposition
- 6Contrast the treatment of suspended losses under each limitation