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At risk rules and passive loss limitations

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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

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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.

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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 ...

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