ExpertHard1 markMultiple Choice
CPA · Question 41 · Area IV: Individual Taxation
Which of the following statements is correct regarding the 'at-risk' rules for loss limitations?
Which of the following statements is correct regarding the 'at-risk' rules for loss limitations?
Answer options:
A.
Nonrecourse debt is never considered at-risk.
B.
The at-risk limitation is applied after the passive activity loss limitation.
C.
Qualified nonrecourse financing secured by real property is considered at-risk.
D.
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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