Question

Jack owns a 10% interest in a partnership (not real estate) in which his at-risk amount is $42,000 at the beginning of the year. During the year, the partnership borrows $80,000 on a nonrecourse note and incurs a loss of $60,000 from operations. Jack's at-risk amount at the end of the year is $44,000.
a. Trueb. False

Answer 1

Answer:

False

Explanation:

Under the at risk rules, the amount a tax payer has at risks at the year end is limited to the amount the taxpayer has at the end of the year.

The amount a taxpayer has at risk is increased by the taxpayer's income and decreased by the share of losses and withdrawal from the activity. For partnership, the at risk increases with an increase in debt and vice versa.

Jack's year-end at-risk amount = At risk amount - (interest *loss) = $42,000 - (10% × $60,000 loss) = $36,000