At-Risk Rules (IRC 465): How They Interact With the Passive Loss Rules (2026)

Short answerThe at-risk rules limit your loss from an activity to the amount you could actually lose in it: your cash and the adjusted basis of property you contributed, plus borrowed amounts for which you are personally liable or that are secured by other property (IRC 465). At-risk is tested before the passive loss rules. A loss that survives it still faces Form 8582.

What it does

IRC 465(a)(1) allows a loss from an activity only to the extent of the aggregate amount with respect to which you are at risk in that activity at the close of the year. A loss that is not allowed carries forward and is treated as a deduction of the same activity in the first succeeding year (IRC 465(a)(2)). Form 6198 computes it.

Amounts at risk

IRC 465(b)
Included	Not included
Cash and the adjusted basis of property you contributed	Amounts protected against loss by stop-loss agreements or similar arrangements (IRC 465(b)(4))
Borrowed money for which you are personally liable	Nonrecourse debt (except qualified nonrecourse financing on real property)
Borrowed money secured by property other than the activity's property, to the extent of its net fair market value	Loans from a person who has an interest in the activity or a related person (IRC 465(b)(3))
Qualified nonrecourse financing secured by the real property used in an activity of holding real property (IRC 465(b)(6))	Borrowed money that you use to finance your own contribution to the activity, which cannot be counted twice (Pub. 925)

Your at-risk amount falls with losses you are allowed to deduct (IRC 465(b)(5)), with distributions, with a change from recourse to nonrecourse debt and with stop-loss arrangements (Pub. 925). It rises when you put in more money or take on more debt that is at risk.

Pub. 925 says that if your amount at risk increases in later years you may deduct previously suspended losses to the extent the increases exceed your later losses, subject to the passive loss rules.

How it fits with section 469

A loss goes through three screens in order: basis, at-risk, and passive. The Form 8582 instructions say PALs are "subject to other limitations (for example, basis and at-risk limitations) before they're subject to the passive loss limitations."

The consequence for a seller: a suspended loss you plan to release must first have been allowed under at-risk. A loss held up by IRC 465 is not a passive loss yet; it is released as your at-risk amount rises. Keep both ledgers.

Real estate

Real estate was brought in under the at-risk rules in 1986, with the qualified nonrecourse financing exception.

Financing counts as qualified nonrecourse financing if no one is personally liable, it is borrowed in connection with holding real property, it is secured by the real property, it is not convertible to an ownership interest, and it comes from a qualified person (such as a bank in the business of lending) or a government (Pub. 925).

A typical bank loan on a rental meets that test, so it counts as at risk even if you are not personally liable. Syndication K-1 investors need to look at how the entity is financed.

Recapture

If your at-risk amount drops below zero at year end, you include in income the lesser of the shortfall or the losses previously allowed under the at-risk rules (IRC 465(e)). The recaptured amount is then treated as a deduction of the activity in the next year (Pub. 925). Typical triggers: a change of recourse debt to nonrecourse debt, or distributions in excess of at-risk basis.

Back to the section 469 map and suspended passive losses.

Sources and dates

26 USC 465(a), (b), (e).
2025 Instructions for Form 8582, "Coordination With Other Limitations."
IRS Publication 925 (2025), Passive Activity and At-Risk Rules, "At-Risk Limits."

Checked against the sources above on October 30, 2026. Dollar figures are 2026 federal (Rev. Proc. 2025-32) unless the page says otherwise. Education only, not tax or legal advice for your situation.

Questions

What are the at-risk rules?

IRC 465 limits an individual's loss from an activity to the amount the individual is at risk in it at year end. A disallowed loss is treated as a deduction of the same activity in the next year (IRC 465(a)).

Which comes first, at-risk or passive?

At-risk. A loss must be allowed under the basis and at-risk limits before the passive rules apply (Form 8582 instructions, 'Coordination With Other Limitations').

Does a mortgage count as at risk?

Recourse debt for which you are personally liable does, and debt secured by other property you pledge does, to the extent of its net fair market value (IRC 465(b)(2)). For real estate, 'qualified nonrecourse financing' secured by the real property also counts (IRC 465(b)(6)).

What is qualified nonrecourse financing?

Financing for holding real property that is borrowed from a qualified person or from a federal, state or local government, is not convertible debt and is secured by the real property (IRC 465(b)(6)(B)). A loan from a bank in the business of lending is generally the common case.

What is at-risk recapture?

If your at-risk amount falls below zero at year end, for example because you converted recourse debt to nonrecourse, previously allowed losses are included in income to the extent of the shortfall (IRC 465(e)).

Does a sale release at-risk losses?

A sale does not release them by itself. Pub. 925: if your amount at risk increases in later years, you may deduct previously suspended losses to the extent the increases exceed your losses in later years, and the deduction may still be limited by the passive loss rules.

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Hans Goldstein is an Enrolled Agent, admitted to practice before the Internal Revenue Service. Not affiliated with or endorsed by the IRS. He is not a CPA or attorney. Education only, not tax or legal advice for your situation.

At-risk rules (IRC 465) and how they interact with the passive loss rules