: 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.
: 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:
Partnership profit (loss)
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