topic Schedule E Royalties At-Risk in Business & farm

Schedule E Royalties At-Risk

esqcapt — Mon, 09 Mar 2026 04:15:22 GMT

I'm filling out my schedule E for Royalty Income I received from IP property. I am trying to determine my at-risk amount. I'm assuming the number would be the cost of the IP filing fee plus and expenses. That the At-Risk would be a number higher than expenses. Would that be correct?

Re: Schedule E Royalties At-Risk

DianeW777 — Mon, 31 Jan 2022 19:21:15 GMT

The amount for which you are at risk is your total investment in the royalty property producing the royalties. If no one else invested in the venture and only you are at risk for any loss if there is no recourse other than you.

At-Risk Amounts

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:
1. You’re personally liable for repayment, or
2. You pledge property (other than property used in the activity) as security for the loan.

Amounts borrowed.

You’re at risk for amounts borrowed to use in the activity if you’re personally liable for repayment. You’re also at risk if the amounts borrowed are secured by property other than property used in the activity. In this case, the amount considered at risk is the net fair market value of your interest in the pledged property. The net fair market value of property is its fair market value (determined on the date the property is pledged) less any prior (or superior) claims to which it’s subject. However, no property will be taken into account as security if it’s directly or indirectly financed by debt that’s secured by property you contributed to the activity.

IRS Publication 925

Re: Schedule E Royalties At-Risk

esqcapt — Mon, 31 Jan 2022 20:12:09 GMT

Thanks for the response

I guess my confusion is that there is no "pledged" property.

So basically, I have copyrights

Let's say I spent $10 to purchase the copyright

I then spent during the year $100 dollars to create the material that makes up the copyright.

I spent another $200 on marketing and other expenses.

My at risk would be $310 (I think) .

As there is no pledge, loans, interest or other, what would make up the adjusted basis?

Re: Schedule E Royalties At-Risk

DianeW777 — Mon, 31 Jan 2022 20:23:30 GMT

All of those expenses do make up the adjusted basis for the copyrights. These are the amounts for which you are at risk at the moment. Any additional funds you expend will continue to add to your cost basis. The cost basis will be an ongoing changing amount potentially.