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Anne
Anne, Master Tax Preparer
Category: Tax
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Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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tax shelters like at-risk provisions and section 469 - passive

Customer Question

tax shelters like 'at-risk provisions' and section 469 - passive activity rule - what to these limitations apply to - deductions in general or only section 162 type activities, - what is the relation between tax shelters and depreciation ?
Submitted: 3 years ago.
Category: Tax
Expert:  Anne replied 3 years ago.
Hi

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7001 Tax Shelters

 

A tax shelter is an activity providing deductions and/or credits to an investor which will reduce tax liability with respect to income from other sources.

 


This means that the losses are not limited only to the section 162 income.

 

 

Investments in tax shelters have been restricted by the at-risk rules and the passive activity rules. Essentially all limited partnership investments, rental properties, and businesses in which an owner does not materially participate have been affected.

 

¶7125 At-Risk Rules

The at-risk rules disallow losses that are in excess of an investor’s amount at risk. In a general sense, at risk is the amount of investment that an investor could possibly lose.

 

As for depreciation, a further limitation imposed by the 1986 Tax Reform Act is that investors who don't actively manage their properties can't use their passive losses to shelter any active income. This means that investors who purchased shares in limited partnerships or similar investments can no longer use these paper losses from depreciation as a shelter against other income.

 

 

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