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Fixed Assets and UltraTax CS 2023 help is now on Help and Support. We're still moving articles, but you can find most content for the 2023 tax year there. Continue using the Help & How-To Center for tax years 2022 and older.

Question

How does UltraTax CS calculate loss limitations?

Answer

There are three separate potential limitations on the amount of losses that may be deducted. These limitations and the order in which they apply are as follows: (1) basis rules, (2) at-risk limitations, and (3) passive activity limitations.

At-risk rules apply to any activity carried on as a trade or business, or for production of income. Losses are only allowed to the extent of the taxpayer's actual financial risk from the activity. The amounts of losses that exceed the at-risk amount are not deductible. For purposes of applying at-risk limits, the loss from an activity is defined as the excess of deductions over income. Therefore, even if a taxpayer has no amount at risk, a deduction is allowed to the extent of income from the activity. A taxpayer's amount at risk is not identical to the adjusted basis of the activity. Certain items are treated differently under at-risk rules than under basis rules.

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