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Schedule C Loss: At-Risk Rules

If you have a loss on Schedule C, the interview screen to indicate that All investment is at risk, or that Some investment is not at risk, is at the end of the Q&A for Schedule C or in the Business Income section of the program.

If everything that has been invested in the company is from your own funds, and therefore any loss by the company comes out of your own pocket (and is not covered for you by someone else), then it is likely that all of the investment is at risk.

If you had previously selected an answer on this screen when the Schedule C was showing a loss and then information entered later causes your loss to become a net profit, you will no longer have access to that screen to change which answer is selected. This is due to the fact that the answer to that question is only used to determine if a business loss is to be limited or not and has no effect on the return if the business shows a profit. If you currently show a profit for the business and wish to access that screen:

  1. Review the business income section and TEMPORARILY enter an expense amount that will cause the business to reflect a loss
  2. Continue through the screens until you reach Business Income - At Risk where you can modify your answer to the question
  3. Review the business section a second time and change the expense item back to the original amount that you had entered

Additional Information

Per the IRS Instructions for Schedule C Profit or Loss From Business, page C-14:

Line 32

TIP You do not need to complete line 32 if line 7 is more than the total of lines 28 and 30.

At-risk rules. In most cases, if you have a business loss and amounts invested in the business for which you are not at risk, you must complete Form 6198 to figure your allowable 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.

Check box 32b if you have amounts invested in this business for which you are not at risk, such as 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 other 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.

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