TurboTax is asking if you had any losses you were not able to take last year because of the at-risk rules. TurboTax will ask questions in the business section to determine whether your activity is subject to the loss limitations based on amounts not being at-risk or based on passive activities. Be sure to answer the follow-up questions that appear.
If all of the money and property in your small business is at-risk, then you should have been able to deduct your business loss last year and you wouldn't have an at-risk carryover.
You’re at risk in any activity for:
- The money and adjusted basis of property you contribute to the activity, and
- Amounts you borrow for use in the activity if:
- You’re personally liable for repayment, or
- You pledge property (other than property used in the activity) as security for the loan. The amount considered at risk is the net fair market value of your interest in the pledged property.
If you have a business loss and amounts invested in the business for which you are not at risk, you may need to apply a limitation that could reduce your deductible loss. The at-risk rules generally limit the amount of loss (including loss on the disposition of assets) you can claim to the amount you could actually lose in the business.
Amounts not at-risk include the following:
- Nonrecourse loans used to finance the business, to acquire property used in the business, or to acquire the business that are not secured by your own property (other than property used in the business). However, there is an exception for certain nonrecourse financing borrowed by you in connection with holding real property.
- Cash, property, or borrowed amounts used in the business (or contributed to the business, or used to acquire the business) that are protected against loss by a guarantee, stop-loss agreement, or another similar arrangement (excluding casualty insurance and insurance against tort liability).
- Amounts borrowed for use in the business from a person who has an interest in the business, other than as a creditor, or who is related under section 465(b)(3)(C) to a person (other than you) having such an interest.
If you didn't borrow funds to finance the business or its assets under circumstances such as these, then you can answer "not applicable".
See IRS Publication 925 and this TurboTax tips article for more information regarding the at-risk rules.
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