Publication 925: Passive Activity And At Risk Rules

Publication 925 explains two key rules, the passive activity and at-risk rules, that may limit how much loss you can deduct from your taxes on certain business activities.

What is Publication 925?

This IRS publication clarifies the passive activity and at-risk rules that can impact your tax deductions for losses from:


  • Businesses
  • Rentals
  • Other income-producing activities

Key points to Remember about Publication 925

A. Apply at-risk rules first: Before applying passive activity rules, determine your allowable loss using the at-risk rules, which limit deductions to your actual financial investment in the activity.

B. Passive activity rules: These rules limit deductions for losses from activities in which you don't materially participate. Generally, rental activities are considered passive unless you actively participate.

Passive Activity Rules:

Activities considered passive:

  1. Rental activities (unless actively participating)
  2. Limited partnerships (except for certain real estate activities)
  3. S corporations (except for certain activities)

Activities considered non-passive:

  1. Trades or businesses in which you materially participate
  2. Real estate rental activities with active participation
  3. Certain working interests in oil and gas properties

Special allowance: Up to $25,000 of passive activity loss may be deductible if you meet certain income thresholds and actively participate in some passive activities.