At-Risk & Passive Activity: At-Risk & Passive Activity Limitations
At-Risk & Passive Activity: At-Risk & Passive Activity Limitations is a critical concept in EA Exam Part 2, Specialized Business Topics. This topic covers essential tax principles that frequently appear on the exam. Understanding at-risk & passive activity limitations is crucial for passing Part 2.
Quick answer
At-risk and passive-activity limitations stack on top of basis to limit business losses. The at-risk rules limit losses to amounts the taxpayer could actually lose; the passive rules limit losses from activities without material participation.
At-Risk & Passive Activity Limitations is tested on EA Exam Part 2 (Specialized Business Topics). Primary IRS reference: IRC §465.
About this EA exam topic
At-risk and passive-activity limitations stack on top of basis to limit business losses. The at-risk rules limit losses to amounts the taxpayer could actually lose; the passive rules limit losses from activities without material participation.
The EA exam tests the ordering: basis limit, then at-risk, then passive-activity limits, and the carryforward of amounts disallowed at each stage.
What you'll be tested on
- At-risk amount and what increases/decreases it
- Ordering of basis, at-risk, and passive limits
- Carryforward of disallowed losses
- Nonrecourse vs. recourse financing in at-risk
How to prepare
- Apply the limits in order: basis → at-risk → passive.
- Remember most nonrecourse debt is not at-risk.
- Track separate carryforwards for each limitation.
Practice questions for At-Risk & Passive Activity Limitations
What this topic covers
At-Risk & Passive Activity Limitations appears in Part 2: Business Taxation within the Specialized Business Topics domain. VantageEA practice questions focus on how at-risk & passive activity rules are applied in realistic EA exam fact patterns.
What candidates practice
Candidates practice identifying tested facts, choosing the best multiple-choice answer, and reviewing explanations tied to IRC §465, IRC §469. This topic supports timed 100-question PSI-style mock tests and shorter topic review sessions.
Related practice-question themes include at-risk, passive-activity, loss-limitations, material-participation.
Frequently asked questions
How do at-risk and passive rules interact?
Losses pass the basis limit, then the at-risk limit, then the passive-activity limit; amounts disallowed at any stage carry forward.
Which part?
Part 2 (Businesses).
Reference?
IRS Publication 925.
Continue studying
More Specialized Business Topics topics from Part 2
Partnership: Partner Basis & K-1 Allocation
Business Entities
S Corporation: S Corp Income/Loss & Distributions
Business Entities
Sole Proprietorship: Sole Proprietorship / Schedule C
Business Entities
Accounting Methods: Accounting Methods & Periods
Specialized Business Topics
Business Credits & COD: Business Credits & Cancellation of Debt
Specialized Business Topics
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