Explore BrainMass

Explore BrainMass

    At risk rules and passive loss limitations

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Chad Scott contributed $15,000 in company A along with 4 other limited partners. The limited partnership also took out a loan of which Chad portion $50,000. The loan was through Compass Bank, which is actively and regularly engaged in the business of lending money. The property company A purchased with the loan proceeds was purchased from Compass Bank. Chad contributed $25,000 in the company B on January 1, Year 1. Chad does not materially participate in either Company A or Company B. Chad's share of net income from Company A during Year 1 was $8,000. His share of losses from Company B was $12,000.

    a. How much will Chad have to carry-over under the At-Risk Rules
    b. In Year 1, how much of Chad's Passive Activity Loss will he be able to offset against his Passive Activity Income?
    c. In year 1 how much will he be suspended
    d. How much will Chad have At-Risk for Company A on January 1, Year 2
    e. How much will Chad have At-Risk for Company B on January 1, Year 2

    © BrainMass Inc. brainmass.com June 3, 2020, 7:40 pm ad1c9bdddf
    https://brainmass.com/business/accounting/risk-rules-passive-loss-limitations-107671

    Attachments

    Solution Preview

    Problem A
    a. Chad will have no at-risk carryovers because he is adequately invested in both entities, meaning losses do not exceed his capital investment. Loans for which Chad is personally liable would be included in at-risk limitations.

    b. Chad can offset losses against income, to the extent of income. In our case, Chad will report the $8000 of gain on Property A and be able to offset $8000 of the $12000 loss on Property ...

    Solution Summary

    The 300 word solution explains about at-risk as the rules apply to the five different questions. How much of Chad's Passive Activity Loss will be able to offset against his Passive Activity Income is determined.

    $2.19

    ADVERTISEMENT