Which of the following statements is correct regarding the 'at-risk' rules for loss limitations?

Answer options:

Nonrecourse debt is never considered at-risk.

The at-risk limitation is applied after the passive activity loss limitation.

Qualified nonrecourse financing secured by real property is considered at-risk.

The at-risk rules do not apply to closely held C corporations.

How to approach this question

At-Risk = Money you can actually lose. Usually Recourse Debt. Exception: Nonrecourse debt on Real Estate (Qualified Nonrecourse Financing) counts as At-Risk.

Full Answer

C.Qualified nonrecourse financing secured by real property is considered at-risk.✓ Correct

Generally, nonrecourse debt is not at-risk. However, 'qualified nonrecourse financing' (commercial lending secured by real property) is treated as an amount at risk.

Common mistakes

Thinking all nonrecourse debt is excluded from at-risk.

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