At-Risk Rules and Passive Activity Loss

What is the name of your state? connecticut

1. can someone please explain what 'at-risk' means?

2. i have a rental property that is going to lose money this year, is my investment considered 'at-risk'?

3. please give a simple definition of passive activity loss. i read the irs definition and it does not make sense.

thank you

1. At risk means the maximum amount you can lose. If you pay $1,000 for stock, you have only $1,000 at risk. If you own a business, your at risk amount is all the money you put into the business PLUS all the debts you sign for while running the business, plus any lawsuits that might force you to sell personal assets to pay business debts.

2. Rental losses are at risk. If you put down $1,000 to buy a house & it burns down, you lose the $1,000 plus the outstanding mortgage that you still have to pay, and might be sued by the tenants.

3. A passive activity is a business that does not require you to work. Rentals are considered passive activities because a rental house requires little work compared to, say, owning a retail store. A rental usually doens't take more than a few hours a month. Rentals become non-passive activities when you have so many of them that renting IS your job. (40 hours a week, no other job, etc.)

A passive activity loss is a passive activity that results in a tax loss. You can claim up to $25,000 of passive activity losses on the 1040 to reduce your AGI, depending on your other income.