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AT RISK RULES vs PASSIVE
The at-risk rules deal with your investment in an activity while the passive activity rules deal with your participation in an activity. At-risk rules limit the amount of a business loss you may deduct in
any given tax year. You may only deduct up to the amount of your
investment in an activity that you stand to lose . If a
loss exceeds your at-risk investment, the excess is a suspended loss and
may be carried to future years indefinitely and deducted when there is
sufficient at-risk basis to absorb the loss. Passive activity rules restrict the deduction of passive activity
losses. You may only deduct passive losses from passive income. The passive activity and at-risk rules are intended to have the
effect of directing capital investment into viable, economic activities,
where profit is the motivating factor and getting a return on
investment, and not merely generating tax savings via sham businesses and financial finagling.
CONTINUATION ON STRATEGIES
2.MANAGE-your tax burden by employing strategic asset location, investing in lower turnover funds, understanding mutual fund distributions, and taking advantage of charitable gifts and capital loss deductions.
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