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disposal_and_at_risk_limits_solution - $ 1,000 Debt relief...

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Topic: Disposal of a business with a suspended loss under the at-risk rules [Solution] Mr. Cheney had a $6,100 outside basis in his Alcott partnership. The basis equaled his $8,000 negative capital account plus his $14,100 share of Alcott’s liabilities. Because the liabilities were nonrecourse, Mr. Cheney could not include his share in his at-risk amount. Thus, his at risk amount was zero, and he had an $8,000 suspended loss because of the at-risk limitation. During the year Mr. Cheney sold his interest to another partner for $1,000 cash. Required : What does Mr. Cheney recognize from the sale of his partnership interest? Cash
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Unformatted text preview: $ 1,000 + Debt relief 14,100 Amount realized 15,100 Basis in partnership interest (6,100) Recognized gain 9,000 The recognized gain increased Mr. Cheney’s at-risk amount to $9,000, thereby allowing him to deduct his $8,000 suspended loss under the at-risk limitation. The recognized gain $9,000 is reduced by the suspended loss $8,000. Mr. Cheney reports a realized gain of $1,000. This is not a coincidence; usually the difference between the partner’s basis & at risk amount is the partner’s share of nonrecourse debt. Therefore, the gain recognized must be at least as much as the excess of nonrecourse debt over basis....
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