Question

1. Last year, Ted invested $100,000 for a 50% interest in a partnership in which he materially participates. The partnership incurred a $300,000 loss. Which one of the following statements is correct?

a. Ted’s nondeductible loss of $200,000 carries forward.

b. Ted’s at-risk amount at the end of the year is negative.

c. The carryover period for his nondeductible loss is 5 years.

d. “a”, “b”, and “c” are incorrect.

e. “a”, “b”, and “c” are correct.

Answer 1

Answer: b

The person has 50% share.

T’s share of loss = Partnership loss × 50% = $300,000 × 50% = $150,000

At-risk amount for the year = T’s invested amount = $100,000

Since the loss amount is greater than at-risk amount, the at-risk balance becomes negative.

At-risk at the end = $100,000 - $150,000

                             = -$50,000

Other options are not correct

Option a) This is the wrong loss shown as $200,000.

Option c) There is no such 5-year stipulation; carryforward can be done endlessly untill the at-risk amount becomes positive.