at_risk_limits_solution

# at_risk_limits_solution - Solution: The at-risk rules (Sec....

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Solution : The at-risk rules (Sec. 465) During 2010 Jim invests \$10,000 in a partnership and receives a 40% interest. The partnership then borrows \$400,000 on a nonrecourse basis. Jim's basis in the partnership is \$170,000 [\$10,000 + (40% x \$400,000)]. Jim's at-risk amount is \$10,000. The partnership buys and leases equipment. Jim materially participates in the business. During the first year, rental income totals \$70,000, depreciation is \$40,000, interest expense is \$35,000 and other cash expenses are \$25,000. Required : How much of the loss can Jim deduct in 2010? How much is suspended under the at-risk limitations? Can you determine which expense is being limited under the at-risk limits? The ordinary partnership loss of \$30,000 is computed as follows: Rental revenue 70,000 Interest expense (35,000) Other expenses (25,000) Depreciation (40,000) Partnership profit (loss) (30,000) Jim's share of the loss is \$12,000 (40% x \$30,000). Jim can only deduct \$10,000 of the partnership loss because he is at-risk for only \$10,000. \$2,000 is suspended under the

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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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at_risk_limits_solution - Solution: The at-risk rules (Sec....

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