disposal_and_at_risk_limits_solution

disposal_and_at_risk_limits_solution - + Debt relief 14,000...

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Solution : Disposal of a business with a loss suspended under the at-risk rules Mr. Cheney had a $6,000 outside basis in his Alcott partnership. The basis equaled his $8,000 negative capital account plus his $14,000 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 : Compute Mr. Cheney’s recognized gain (loss) from the sale of his partnership interest. Cash $ 1,000
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Unformatted text preview: + Debt relief 14,000 Amount realized 15,000 Basis in partnership interest (6,000) Recognized gain on sale 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 of $9,000 is reduced by the $8,000 suspended loss. Mr. Cheney recognizes a gain of $1,000 on his tax return. This is not a coincidence; usually the difference between a partner’s basis & their at-risk amount is the partner’s share of nonrecourse debt. Therefore, the recognized gain must be at least as much as the excess of nonrecourse debt over basis....
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This note was uploaded on 09/09/2011 for the course TAX 6845 taught by Professor Kelliher,c during the Fall '08 term at University of Central Florida.

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