Final answer:
The at-risk rules are designed to limit investors from deducting artificial ordinary losses associated with certain types of debt. These rules only allow the deduction of losses up to the amount the taxpayer has actually risked in the activity, thereby preventing the claim of large tax losses that do not represent real economic losses.
Step-by-step explanation:
The provision meant to limit the ability of investors to deduct "artificial" ordinary losses produced with certain types of debt is known as the at-risk rules. The at-risk rules limit the amount of loss a taxpayer can claim to the amount the taxpayer has at risk in the activity. This includes actual cash invested, certain types of loans for which the taxpayer is personally liable, and certain types of property contributed to the activity. The aim is to prevent investors from claiming large tax losses that do not represent actual economic losses.
On the other hand, the passive activity loss rules limit the ability to deduct losses from business activities in which the taxpayer does not materially participate. The wash sale rules prevent taxpayers from claiming tax deductions for securities sold in a wash sale. Since the question specifically asks about deductions related to debt, option 1) At-risk rules is the correct answer.