In determining the amount of that a taxpayer can deduct from an activity, the at-risk rules are applied before the passive loss rules.

Question

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The at-risk rules determine whether a taxpayer can deduct losses from an activity up to the amount that he or she has at risk in the activity. These rules are applied before the passive loss rules, which limit the deductibility of losses from passive activities (such as rental properties) against other types of income.

In Determining the Amount of That a Taxpayer Can Deduct