Section 4: 22–32%R16
Loss Limitations: Basis, At-Risk, and Passive Activity
Exam insight
Before a loss ever lands on the return, it has to clear three gates in order: basis, at-risk, then passive activity. Candidates who run the gates out of order, or skip one, almost always land on the wrong deductible loss.
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
Patterns in this topic
The exam re-skins the same archetypes. Recognize these here, then drill them in the Pattern Lab.
Exam tip
Study smarter: before you expand each card, cover the screen and try to recall what the concept means from its title alone. Retrieving it from memory builds the recall the exam actually tests, and it beats re-reading.