ExpertHard1 markMultiple Choice
CPA · Question 08 · Area I: Individual Compliance and Planning
In Year 1, a taxpayer invests $50,000 cash in a partnership and signs a $40,000 nonrecourse note (secured only by the partnership interest, not qualified nonrecourse financing). The partnership allocates a $70,000 loss to the taxpayer. The taxpayer has no passive income. How much loss is suspended under the At-Risk rules specifically?
In Year 1, a taxpayer invests $50,000 cash in a partnership and signs a $40,000 nonrecourse note (secured only by the partnership interest, not qualified nonrecourse financing). The partnership allocates a $70,000 loss to the taxpayer. The taxpayer has no passive income. How much loss is suspended under the At-Risk rules specifically?
Answer options:
A.
$0
B.
$10,000
C.
$20,000
D.
$70,000
How to approach this question
Calculate the At-Risk amount. Cash ($50k) + Recourse Debt ($0) + Qualified Nonrecourse ($0). The nonrecourse note here does not increase at-risk amount. Loss allowed by At-Risk = $50k. Suspended = $70k - $50k = $20k.
Full Answer
C.$20,000✓ Correct
C
IRC §465. At-Risk amount = Cash contributed ($50,000). The nonrecourse debt is not qualified nonrecourse financing (real estate), so it adds to basis but not at-risk amount. Total Loss = $70,000. Allowed by At-Risk = $50,000. Suspended by At-Risk = $20,000. (Note: The $50,000 allowed by At-Risk will likely be suspended by Passive Activity rules, but the question asks specifically about At-Risk suspension).
Common mistakes
Including the nonrecourse debt in the at-risk calculation.
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