TCP CPA Exam: How to Calculate the At-Risk Loss Limitation Where an Individual Materially Participates, Including Pass-Through Entities and Rental Real Estate

Introduction

Purpose of the Article

In this article, we’ll cover how to calculate the at-risk loss limitation where an individual materially participates, including pass-through entities and rental real estate. Understanding at-risk rules and loss limitations is essential for individuals engaged in business or rental activities, especially those who invest in partnerships, S corporations, or rental real estate. These rules determine the amount of loss a taxpayer can deduct in a given year, ensuring that deductions only reflect actual financial exposure. By grasping the concept of at-risk limitations, individuals can accurately report losses, avoid overstating deductions, and stay compliant with tax laws. Failure to understand and apply these rules correctly can lead to disallowed deductions, resulting in increased tax liabilities or audits by the IRS.

This article aims to provide clarity on how to calculate the at-risk loss limitation, particularly for taxpayers who materially participate in an activity. It will also explore how these rules apply to losses from pass-through entities and real estate rental activities where the taxpayer actively participates.

Overview of Key Concepts

Before diving into the calculation of at-risk loss limitations, it’s important to understand a few key concepts:

1. At-Risk Rules: The at-risk rules are tax provisions that limit the amount of loss a taxpayer can claim in any activity to the amount they actually have at risk. This means that taxpayers can only deduct losses up to the extent of their investment or financial exposure in the business or rental activity. These rules were established to prevent taxpayers from claiming excessive losses beyond what they have personally risked in the venture.
2. Material Participation: Material participation refers to the taxpayer’s involvement in the business or activity. To materially participate means that the taxpayer is significantly involved in the operations of the business. This is crucial because losses from activities where the taxpayer does not materially participate are generally treated as passive and subject to additional limitations under the passive activity loss rules.
3. Loss Limitations: Loss limitations occur when taxpayers have losses that exceed their at-risk amount. In such cases, the excess losses are suspended and can only be deducted in future years when the taxpayer increases their at-risk amount or generates income from the activity. These limitations apply to various business structures, including partnerships, S corporations, and rental activities.

By understanding these foundational concepts, taxpayers can ensure they apply the at-risk loss limitation rules correctly when calculating their tax liability.

Understanding the At-Risk Rules

Definition of At-Risk Amount

The at-risk amount refers to the total financial exposure a taxpayer has in a business or rental activity for tax purposes. It represents the amount of money or property a taxpayer could actually lose if the business or investment fails. This at-risk amount includes:

• Cash investments made directly into the activity.
• Property contributions, including the value of assets that the taxpayer has put into the business.
• Recourse loans, where the taxpayer is personally liable for the repayment, meaning the lender can pursue the taxpayer’s personal assets if the business defaults.

In contrast, nonrecourse loans, where the taxpayer is not personally liable (i.e., the lender can only seize the specific property used as collateral), typically do not increase the at-risk amount, except in the case of certain real estate activities.

The IRS uses this at-risk amount to determine how much of a taxpayer’s loss is deductible in any given year. Only losses up to the amount the taxpayer is at risk for can be claimed. Any losses beyond this amount must be suspended and carried forward to future years when the taxpayer’s at-risk amount increases or when income is generated from the activity.

Importance of the At-Risk Limitations

The at-risk rules are in place to prevent taxpayers from claiming losses that exceed their actual financial risk in a business or investment. The rationale behind these limitations is that taxpayers should only be allowed to deduct losses that they are genuinely at risk of incurring.

Without these limitations, individuals could potentially create tax shelter schemes by claiming large losses from activities where they are not personally at risk of losing money. The IRS imposes these rules to ensure that the tax benefits of business losses are aligned with the taxpayer’s actual financial involvement.

For example, if a taxpayer borrows money to invest in a partnership but is not personally liable for repaying the loan, they cannot count that loan amount as being “at risk” because they do not stand to lose their own money. The at-risk rules restrict loss deductions to what the taxpayer is truly financially exposed to.

Activities Subject to At-Risk Rules

The at-risk rules apply to a variety of activities in which a taxpayer is involved. These activities generally include:

1. Partnerships: Partners in a partnership are subject to the at-risk rules, and their deductible losses are limited to their at-risk amount in the business. This is especially relevant in limited partnerships, where some partners may not be liable for the partnership’s debts.
2. S Corporations: Shareholders of S corporations are also subject to at-risk rules. The losses from the corporation that flow through to shareholders are limited by the amount the shareholder has at risk in the corporation.
3. Rental Real Estate Activities: For taxpayers involved in rental real estate, the at-risk rules apply to limit losses to the amount the taxpayer is financially exposed. However, real estate activities have unique considerations, especially if the taxpayer has recourse or nonrecourse debt, which can affect the calculation of the at-risk amount.
4. Other Activities: The at-risk rules also apply to any business or trade in which the taxpayer materially participates, including sole proprietorships and certain closely held corporations.

These rules are essential in ensuring that taxpayers cannot claim losses that exceed their actual investment or financial stake in a business. Understanding which activities are subject to the at-risk rules is critical for determining allowable deductions, especially when dealing with complex business structures like partnerships and S corporations.

Material Participation in an Activity

Definition of Material Participation

Material participation refers to the level of involvement a taxpayer has in a business or rental activity. To materially participate means that the taxpayer is actively engaged in the operation of the business on a regular, continuous, and substantial basis. The concept is critical for tax purposes because it determines whether a taxpayer’s losses from an activity are treated as active or passive.

• If a taxpayer materially participates, losses from the activity are generally considered active, allowing them to be deducted against other sources of active income.
• If a taxpayer does not materially participate, the losses are treated as passive, meaning they can only be deducted against passive income, which is often more limited.

Meeting the material participation standard is, therefore, essential for taxpayers who wish to fully deduct losses from activities such as partnerships, S corporations, and rental real estate ventures, especially when these losses exceed income from the activity.

Tests for Material Participation

The IRS has established seven tests to determine whether a taxpayer materially participates in an activity. Passing any one of these tests is sufficient to meet the material participation requirement:

1. The 500-Hour Test: The taxpayer must participate in the activity for more than 500 hours during the tax year. This is the most straightforward and commonly used test.
2. The Substantially All Participation Test: The taxpayer’s participation in the activity constitutes substantially all of the participation by all individuals involved in the activity, including non-owners like employees.
3. The 100-Hour and More Than Anyone Else Test: The taxpayer participates in the activity for more than 100 hours during the tax year, and no other individual (including non-owners) participates more than the taxpayer.
4. Significant Participation Activities Test: The taxpayer participates in several activities, each for more than 100 hours during the tax year, and the total participation in all these activities exceeds 500 hours. These activities must be “significant participation activities,” meaning that each activity is engaged in regularly and substantially.
5. Material Participation in Any Five of the Last Ten Years: The taxpayer materially participated in the activity for any five of the previous ten tax years. This test is particularly useful for individuals involved in long-standing businesses.
6. Material Participation in a Personal Service Activity: If the activity is a personal service activity (e.g., law, accounting, or health services), and the taxpayer materially participated in the activity for any three previous years, they are considered to meet the material participation requirement.
7. Facts and Circumstances Test: The taxpayer participates in the activity on a regular, continuous, and substantial basis, based on the specific facts and circumstances. However, this test requires that the taxpayer spend at least 100 hours on the activity during the tax year and that no one else spends more time on the activity than the taxpayer.

Impact of Material Participation on At-Risk Limitations

Meeting the material participation standard is crucial in the application of at-risk rules because it determines whether the losses from the activity can be fully deducted. If the taxpayer materially participates in the activity, losses are considered active and are eligible to offset other active income, provided they are within the at-risk limits.

• Material Participation and Active Losses: When a taxpayer materially participates, they can deduct losses up to their at-risk amount. This is advantageous because it allows individuals engaged in their own business or rental activity to apply losses against other active income sources like wages or business profits.
• Failure to Materially Participate: If a taxpayer fails to meet the material participation requirements, losses are classified as passive. Passive losses are more restricted—they can only be used to offset passive income. Furthermore, suspended passive losses can only be utilized in future years when there is enough passive income or when the taxpayer disposes of their interest in the activity.

Therefore, material participation directly affects the taxpayer’s ability to fully utilize losses from an activity. Even if a taxpayer has a sufficient at-risk amount, failing to meet the material participation standard could result in the loss being classified as passive and limited by the passive activity loss rules. Understanding and applying the material participation tests ensures that taxpayers can maximize their allowable deductions within the scope of the at-risk limitations.

Calculating the At-Risk Loss Limitation

Components of At-Risk Amount

To determine the at-risk loss limitation, it’s essential to understand the components that contribute to or reduce the at-risk amount. This amount represents the taxpayer’s financial exposure in an activity, which limits the deductibility of losses. The main components include cash contributions, property contributions, borrowed funds, income from the activity, and distributions or withdrawals.

Cash Contributions

Cash investments are one of the most straightforward ways to increase a taxpayer’s at-risk amount. Any direct monetary contribution made to the activity by the taxpayer is included in their at-risk amount. For example, if a taxpayer invests $50,000 in a business or rental property, that entire sum counts toward the at-risk amount. The taxpayer can deduct losses up to the total cash invested, provided they meet other tax rules such as material participation.

Property Contributions

When a taxpayer contributes property to a business or rental activity, the fair market value of the property (less any outstanding liabilities attached to it) is included in their at-risk amount. For example, if a taxpayer transfers property valued at $100,000 into a business, with a mortgage of $40,000 attached, the net value of $60,000 is added to the at-risk amount. However, any debt secured by nonrecourse financing may not count toward the at-risk amount, depending on the nature of the debt.

Borrowed Funds

The inclusion of borrowed funds in the at-risk amount depends on whether the loan is a recourse or non-recourse loan:

• Recourse Debt: If the taxpayer is personally liable for the loan, meaning the lender can pursue the taxpayer’s personal assets if the business defaults, the borrowed funds are included in the at-risk amount. This increases the taxpayer’s financial exposure in the activity.
• Non-Recourse Debt: If the loan is secured solely by the business or property itself and the lender cannot pursue the taxpayer’s personal assets, the funds generally do not count toward the at-risk amount. However, certain exceptions apply, such as non-recourse financing for real estate where the lender has a direct interest in the property.

For example, if a taxpayer borrows $100,000 on a recourse loan to fund a business, that $100,000 is included in their at-risk amount. However, if the same loan were non-recourse, it may not be included unless it qualifies as an exception for certain real estate activities.

Income from the Activity

Income generated from the activity increases the at-risk amount because it adds to the taxpayer’s financial stake in the business. Profits earned from the activity are effectively reinvested in the business, enhancing the at-risk amount. For instance, if a taxpayer earns $10,000 in profits from a partnership, this income increases their at-risk amount, allowing for higher loss deductions in the future.

Distributions and Withdrawals

On the other hand, any cash distributions or property withdrawals reduce the taxpayer’s at-risk amount. When a taxpayer receives distributions from the business, it reduces their financial exposure in the activity. For example, if a taxpayer receives a $5,000 cash distribution from the partnership, their at-risk amount decreases by the same amount.

It’s important to track these distributions carefully, as they limit the amount of losses that can be deducted. Similarly, withdrawing property from the business decreases the at-risk amount by the fair market value of the property at the time of withdrawal.

Step-by-Step Example Calculation

Let’s walk through an example to demonstrate how to calculate the at-risk amount for a taxpayer who materially participates in a partnership.

Scenario:

• John invests $60,000 in cash into a partnership.
• He also contributes property valued at $40,000, but the property has a mortgage of $15,000 (recourse debt).
• John takes out a $30,000 loan to invest in the partnership, for which he is personally liable (recourse loan).
• The partnership generates $10,000 of income during the year.
• John receives a $5,000 cash distribution from the partnership.

Step 1: Calculate John’s initial contributions to the at-risk amount:

• Cash contributions: $60,000
• Property contribution: $40,000 (value) – $15,000 (recourse debt) = $25,000
• Recourse loan: $30,000

Total initial at-risk amount:
$60,000 (cash) + $25,000 (property) + $30,000 (loan) = $115,000

Step 2: Add income from the activity:
$115,000 + $10,000 (income) = $125,000

Step 3: Subtract the cash distribution:
$125,000 – $5,000 (distribution) = $120,000

John’s final at-risk amount:
John’s total at-risk amount for the year is $120,000. This represents the maximum amount of losses he can deduct from the partnership in the current year.

In future years, if John’s at-risk amount changes due to additional contributions, income, or distributions, he will need to recalculate the at-risk amount to ensure compliance with the IRS’s at-risk loss limitation rules.

Pass-Through Entities and At-Risk Limitations

Losses from Pass-Through Entities

In the case of pass-through entities like partnerships and S corporations, the entity itself does not pay income tax. Instead, income, deductions, and losses “pass through” to the individual owners, who report them on their personal tax returns. This allows owners to take advantage of losses incurred by the business, but the IRS limits the amount of loss that can be deducted based on the taxpayer’s at-risk amount.

For partnerships and S corporations, each owner’s share of losses is determined by their ownership interest. However, even if the entity incurs significant losses, an individual owner can only deduct their share of losses up to the amount they have at risk in the entity. If the owner’s at-risk amount is less than their share of the losses, the excess losses are suspended and can be carried forward to future tax years when the at-risk amount increases or income is generated.

For example, if a partnership experiences a loss of $100,000, and a taxpayer owns 50% of the partnership, the taxpayer’s share of the loss would be $50,000. However, if the taxpayer’s at-risk amount is only $30,000, they can only deduct $30,000 in the current year. The remaining $20,000 of the loss would be suspended and carried forward until the taxpayer’s at-risk amount increases.

How to Apply the At-Risk Limitation to Pass-Through Losses

To determine how much of a loss from a pass-through entity can be deducted, taxpayers need to apply the at-risk limitation rules. Here’s how to apply these rules step-by-step:

1. Determine the Share of Loss: Calculate the taxpayer’s share of the loss based on their ownership interest in the pass-through entity. This is the initial amount the taxpayer is eligible to deduct, subject to further limitations.
2. Calculate the At-Risk Amount: Determine the taxpayer’s at-risk amount by considering their contributions (cash, property, and recourse debt), income from the activity, and any prior distributions or withdrawals.
3. Compare Losses to At-Risk Amount: Compare the taxpayer’s share of the loss to their at-risk amount. The deductible loss is limited to the at-risk amount. If the loss exceeds the at-risk amount, the excess is suspended and carried forward to future years.
4. Carry Forward Suspended Losses: If any losses are suspended, track them for use in future years. The taxpayer can use these losses when they increase their at-risk amount, either through additional contributions or income generated by the entity.

Example of At-Risk Loss Limitation in a Pass-Through Entity

Scenario:
Sarah owns 40% of an S corporation, and her S corporation generates a $200,000 loss for the tax year. Based on her ownership share, Sarah’s portion of the loss is $80,000. However, her at-risk amount, calculated as follows, limits how much of this loss she can deduct:

• Cash Contributions: Sarah has invested $50,000 in cash into the S corporation.
• Recourse Loan: Sarah is personally liable for a $20,000 recourse loan used by the corporation.
• Income from the Activity: The S corporation generated $5,000 of income in the previous year, which is included in Sarah’s at-risk amount.
• Distributions: Sarah received a $10,000 cash distribution from the S corporation during the year, reducing her at-risk amount.

Let’s calculate Sarah’s at-risk amount and determine how much of her $80,000 loss she can deduct.

Step 1: Calculate Sarah’s at-risk amount.

• Cash contributions: $50,000
• Recourse loan: $20,000
• Income from the prior year: $5,000
• Less: Distributions: -$10,000

Total at-risk amount:
$50,000 + $20,000 + $5,000 – $10,000 = $65,000

Step 2: Compare Sarah’s share of the loss to her at-risk amount.
Sarah’s share of the S corporation’s loss is $80,000, but her at-risk amount is only $65,000. Therefore, she can deduct $65,000 of the loss in the current year.

Step 3: Determine the suspended loss.
The difference between Sarah’s share of the loss and her at-risk amount is $80,000 – $65,000 = $15,000. This $15,000 loss is suspended and carried forward to future years, where it can be deducted if Sarah’s at-risk amount increases.

In future years, Sarah can apply this suspended loss when her at-risk amount increases, such as through additional cash contributions, repayment of loans, or income generated from the S corporation.

This example illustrates how pass-through losses are limited by the at-risk amount and highlights the importance of accurately tracking both losses and at-risk contributions for tax purposes.

Real Estate Rental Activities with Active Participation

Definition of Active Participation

Active participation in real estate rental activities is a less stringent standard than material participation. It refers to the taxpayer’s involvement in making management decisions related to the rental property, such as approving new tenants, setting rental terms, or arranging for repairs. Unlike material participation, active participation does not require the taxpayer to be involved on a regular, continuous, or substantial basis.

In contrast to material participation, which applies to broader business activities, active participation specifically affects the ability to deduct rental real estate losses. A taxpayer who actively participates in a rental real estate activity may qualify for special tax benefits, such as deducting up to $25,000 in rental losses against other income, assuming certain conditions are met.

To qualify as an active participant, the taxpayer must own at least 10% of the rental property and be involved in significant decisions, even if they hire a property manager to handle day-to-day operations.

Special Rules for Real Estate Rental Losses

Real estate rental activities are generally considered passive activities, meaning that losses from these activities can only offset passive income. However, the tax code provides a special exception for individuals who actively participate in rental real estate activities.

The key benefit of this exception is the ability to deduct up to $25,000 of rental real estate losses against non-passive income (e.g., wages, salaries, or business income), provided the taxpayer actively participates in managing the rental property. This $25,000 offset is available for taxpayers with a modified adjusted gross income (MAGI) of $100,000 or less.

However, the deduction phases out as income increases:

• For every dollar of MAGI above $100,000, the $25,000 deduction is reduced by 50 cents.
• By the time MAGI reaches $150,000, the deduction is fully phased out, meaning taxpayers above this income level cannot claim the special real estate rental loss deduction.

Application of At-Risk Rules to Real Estate Rental Activities

The at-risk rules apply to rental real estate activities just as they do to other business activities. Even if a taxpayer actively participates in a rental activity and qualifies for the $25,000 loss deduction, their deduction is still limited by their at-risk amount.

The at-risk rules for real estate rental activities determine how much of a loss the taxpayer can actually claim in any given year. A taxpayer’s at-risk amount is made up of:

• Cash contributions: Direct monetary investments into the property.
• Borrowed funds: Recourse loans where the taxpayer is personally liable.
• Property contributions: The net value of any property contributed to the activity.
• Income from the activity: Earnings from the rental property, which increase the at-risk amount.
• Distributions or withdrawals: Cash or property withdrawals that reduce the at-risk amount.

If a taxpayer’s losses exceed their at-risk amount, any excess loss is suspended and can be carried forward to future years when the taxpayer increases their at-risk amount or generates additional income from the rental property.

Example of At-Risk Limitation for Real Estate Rental Losses

Scenario:
Lisa owns a rental property in which she actively participates. Her modified adjusted gross income (MAGI) for the year is $95,000, and she qualifies for the full $25,000 real estate loss offset. Here are the financial details of her rental activity:

• Lisa has invested $50,000 in cash into the property.
• She also took out a $40,000 recourse loan to finance repairs.
• The property generated $10,000 of rental income during the year.
• Lisa received a $5,000 cash distribution from the rental activity.
• The rental property generated a total loss of $30,000 for the year.

Step 1: Calculate Lisa’s at-risk amount.

• Cash contributions: $50,000
• Recourse loan: $40,000
• Income from the activity: $10,000
• Less: Distributions: -$5,000

Total at-risk amount:
$50,000 + $40,000 + $10,000 – $5,000 = $95,000

Step 2: Determine the deductible loss.
Lisa’s rental property generated a $30,000 loss, but her loss deduction is subject to both the $25,000 special real estate loss limit and her at-risk amount. Since her at-risk amount ($95,000) exceeds the $25,000 real estate loss deduction limit, she can deduct the maximum $25,000 loss.

Step 3: Apply the phase-out rule (if applicable).
Since Lisa’s MAGI is below $100,000, there is no phase-out, and she qualifies for the full $25,000 deduction.

Step 4: Suspended losses.
The remaining $5,000 of Lisa’s loss ($30,000 – $25,000) is suspended and can be carried forward to future years, provided her at-risk amount remains sufficient to absorb the loss.

This example demonstrates how the at-risk rules limit the amount of loss that can be deducted from rental activities, even when the taxpayer qualifies for the special $25,000 loss offset for active participation. It also highlights the need to carefully track at-risk contributions and ensure compliance with both the at-risk and real estate loss limitation rules.

Suspended Losses and Carryover Provisions

What Happens to Disallowed Losses

When a taxpayer’s losses exceed their at-risk amount, the excess losses are disallowed for deduction in the current year. However, these disallowed losses are not permanently lost. Instead, they become suspended losses, which can be carried forward to future tax years. Suspended losses remain “on hold” until the taxpayer’s at-risk amount increases, allowing them to offset income in future years.

Suspended losses are specific to the activity that generated them, meaning they can only be used to offset income or losses from the same activity in future years. These losses remain suspended until one of two things happens:

1. The taxpayer increases their at-risk amount in the activity.
2. The taxpayer disposes of their interest in the activity, at which point all suspended losses can be fully deducted.

When Losses Can Be Used

Suspended losses can only be deducted in future years when certain conditions are met. Specifically, these losses become deductible when the taxpayer increases their at-risk amount in the activity. Common ways to increase the at-risk amount include:

• Additional Investments: The taxpayer makes new cash or property contributions to the activity, increasing their financial stake.
• Repayment of Recourse Debt: If the taxpayer repays recourse loans or becomes liable for additional recourse debt, their at-risk amount increases.
• Income from the Activity: If the activity generates income in future years, this income increases the at-risk amount, allowing suspended losses to be used.

Once the at-risk amount increases, the previously suspended losses can be deducted up to the new at-risk limit. Any remaining losses that still exceed the at-risk amount will continue to be suspended and carried forward.

Example of Carrying Forward Suspended Losses

Scenario:
Michael is a partner in a partnership and actively participates in the business. In Year 1, his share of the partnership’s loss is $50,000, but his at-risk amount for the year is only $30,000. As a result, Michael can only deduct $30,000 of the loss in Year 1, and the remaining $20,000 becomes a suspended loss.

Year 1:

• Michael’s share of the loss: $50,000
• Michael’s at-risk amount: $30,000
• Deductible loss: $30,000
• Suspended loss carried forward: $20,000

In Year 2, Michael makes an additional cash contribution of $15,000 to the partnership, increasing his at-risk amount. In addition, the partnership generates $5,000 in income. Michael’s new at-risk amount for Year 2 is calculated as follows:

Year 2:

• Initial at-risk amount: $30,000
• Additional cash contribution: $15,000
• Income from the partnership: $5,000
• Total at-risk amount in Year 2: $50,000

Michael’s suspended loss from Year 1 is $20,000, and since his at-risk amount has increased to $50,000 in Year 2, he can now deduct the entire $20,000 suspended loss in Year 2. If the partnership generates additional losses in Year 2, Michael can also deduct those losses up to his remaining at-risk amount.

Summary:

• Year 1 suspended loss carried forward: $20,000
• Year 2 increase in at-risk amount: $20,000 (from cash contribution and income)
• Deduction in Year 2: Full $20,000 suspended loss from Year 1

This example illustrates how suspended losses can be carried forward and eventually deducted when the taxpayer’s at-risk amount increases in future years. Tracking suspended losses and changes in the at-risk amount is crucial for ensuring that losses are properly deducted in the correct tax year.

Conclusion

Recap of Key Points

Understanding the at-risk rules is crucial for taxpayers involved in pass-through entities like partnerships, S corporations, and real estate rental activities. These rules limit the amount of loss that can be deducted based on the taxpayer’s financial exposure, ensuring that only losses within the taxpayer’s actual risk are deducted.

• For pass-through entities, losses are passed through to the individual taxpayer, but the deductible amount is limited by the taxpayer’s at-risk amount. Any losses that exceed this amount are suspended and can only be deducted when the at-risk amount increases or the taxpayer disposes of their interest in the activity.
• For real estate rental activities, active participation may allow a taxpayer to deduct up to $25,000 in losses against other income, but this is still subject to the at-risk rules, meaning the deductible loss cannot exceed the taxpayer’s at-risk amount.

Properly applying these rules helps taxpayers avoid disallowed deductions and ensures compliance with IRS regulations, avoiding potential penalties.

Final Example or Tip

Final Tip: One of the best ways to ensure accurate calculation of at-risk amounts is to maintain detailed records of all contributions, borrowed funds, income, and distributions related to the activity. This includes tracking recourse vs. non-recourse loans, as well as any property contributions or withdrawals. Taxpayers should also regularly review their at-risk amounts to ensure they are maximizing their allowable deductions while remaining compliant with the at-risk rules.

By carefully managing and calculating your at-risk amount, you can make the most of your allowable tax deductions and carry forward any suspended losses to future years when they can be used. Always consult with a tax professional if you are unsure about your at-risk calculations, especially when dealing with complex entities or multiple activities.