Passive Activity and At-Risk Limits
Learn the decision pattern the exam can test, then apply it to a realistic taxpayer fact pattern.
What changes the answer?
Having tax basis does not prove the taxpayer is at risk or materially participates.
A tax-practice scenario
An owner funds a rental with nonrecourse debt and receives a K-1 loss. Apply each limitation separately and track suspensions.
Identify the taxpayer, entity, transaction, and tax period first. Write the controlling tests in order, apply only the relevant facts, and keep the reporting result separate from any planning recommendation.
Do not take this shortcut.
Using one suspended-loss balance for all limitation regimes.
Turn the rule into recall.
Maintain distinct roll-forwards for basis, at-risk, passive, and any later loss limits.
- ExplainState the governing distinction without notes.
- ApplyChange one fact in the scenario and predict the new result.
- RetrieveAnswer an unseen question, then review every option.
Official source and scope
This lesson follows the current PSI content outline and uses the IRS reference below for the underlying tax or practice framework. Always confirm current forms, instructions, thresholds, and effective dates before advising a taxpayer.