Loss limitations

REG Chapter 15 · Area IV · Blueprint IV.D

Not every loss is deductible, and many that are deductible are not deductible yet. This chapter walks through the gates a loss must pass: capital loss netting and the $3,000 limit, disallowed losses on personal-use assets, related-party sales, wash sales and hobbies, and then the four gates for business losses from pass-through entities: basis, at-risk, passive activity and excess business loss. The Blueprint asks you to compute allowed and disallowed losses and to review a return and its diagnostic flags. Owen, Rosa and Ivan each bring a loss to Reggie. Figures are for tax year 2026.

In this chapter

Netting capital gains and losses
Personal-use assets, related parties and wash sales
Hobby losses
Gate 1: basis
Gate 2: at-risk
Gate 3: passive activity losses
Gate 4: excess business losses
Order of the limits, NOLs and reviewing losses

This chapter has 8 lessons, 50 practice MCQs with explanations and 20 simulations, plus flashcards and a recall sheet.

What this chapter covers

Capital loss netting and carryforwards
basis, at-risk, passive and excess business loss limits
hobby losses, wash sales and personal-use assets

Chapter 14: Adjustments and deductions · Chapter 16: Filing status and dependents