Order of Loss Limitations

1. Basis
2. At-Risk
3. Passive Activity
4. Excess Business Losses

Each loss limitation is sequentially evaluated, if the loss is not limited by any of the four, the full loss can be deducted.

The highest limitation on losses of the four will equal the disallowed loss up to the total loss.

Basis

Losses greater than adjusted basis in partnership or s-corp are disallowed.

Carried forward indefinitely deduct them subject to basis limit of the future period

At-Risk

Losses greater than the amount considered at risk are disallowed

At risk amount is generally the amount of money a taxpayer could lose in a passive activity

Not a part of At-Risk Amount:

• Nonrecourse loans that are not secured by taxpayer's own property
• Cash, property, or borrowed amounts used in the activity that are protected against loss by a guarantee
• Amounts borrowed for use in the activity from a person that has an interest in the same activity (unless there is a true debtor-creditor relationship established.

Similar to Basis, in the sense that "At-Risk" is how much you have into the business, but at-risk adds debt as a factor.

If you have guarantee a loan that is made to the business and the business goes under, you lose your basis and you have to personally pay the loan you guaranteed.

Thus, At-Risk could be the same as Basis in the absence of debt