! ity to make a profit, your loss deduction

CAUTION may be limited by the not-for-profit

rules. See Not-for-Profit Farming , later.

At-Risk Limits

The at-risk rules limit your deduction for losses from most business or income-producing activities, including farming. These rules limit the losses you can deduct when figuring your taxable income. The deductible loss from an activity is limited to the amount you have at risk in the activity.

You are at risk in any activity for:

1. The money and adjusted basis of property you contribute to the activity; and

2. Amounts you borrow for use in the activity if:

a. You are personally liable for repay ment, or

b. You pledge property (other than prop erty used in the activity) as security for the loan.

You aren’t at risk, however, for amounts you borrow for use in a farming activity from a person who has an interest in the activity (other than as a creditor) or a person related to someone (other than you) having such an interest.

For more information, see Pub. 925.

Passive Activity Limits

A passive activity is generally any activity involving the conduct of any trade or business in which you don’t materially participate. Generally, a rental activity is a passive activity.

If you have a passive activity, special rules limit the loss you can deduct in the tax year. You can generally deduct losses from passive activities only up to income from passive activities. Credits are similarly limited.

For more information, see Pub. 925.

Excess Business Loss Limitation

Noncorporate taxpayers may be subject to excess business loss limitations. The at-risk limits and the passive activity limits are applied before calculating the amount of any excess business loss. An excess business loss is the amount by which the total deductions attributable to all of your trades or businesses exceed your total gross income and gains attributable to those trades or businesses plus $313,000 (or $626,000 in the case of a joint return). Business gains and losses reported on Form 4797 and Form 8949 are included in the excess business loss calculation. This includes farming losses from casualty losses or losses by reason of disease or drought. Excess business losses that are disallowed are treated as a net operating loss carryover to the following tax year. See Form 461 and its instructions for details.

Taxpayers with losses from a farming business must apply the excess business loss limitation before carrying any net operating losses back 2 years. See the Instructions for Form 172, Net Operating Losses (NOLs).

If you incur both farming and nonfarming business losses that are more than the threshold amount, you must allocate the threshold amount first to the farming losses to the extent you have a net operating loss.

Excess farm losses that are disallowed can be carried forward to the next tax year and treated as a net operating loss deduction from that year.