At-Risk Loss Limitation. Mary and Gary are partners in the MG Partnership. Mary

Question

At-Risk Loss Limitation. Mary and Gary are partners in the MG Partnership. Mary owns a 40% capital, profits, and loss interest. Gary owns the remaining interest. Both materially participate in partnership activities. At the beginning of the current year, MG's only liabilities are $30, 000 in accounts payable, which remain outstanding at year-end. In November, MG borrows $100, 000 on a non recourse basis from First Bank. The loan is secured by property with a $200, 000 FMV. These are MG's only liabilities at year-end. Bases for the partnership interests at the beginning of the year are $80, 000 for Mary and $120, 000 for Gary after considering the impact of liabilities but before considering operations. MG has a $200, 000 ordinary loss during the current year. How much loss can Mary and Gary recognize?

Explanation / Answer

Therefore the value of loss recognized by Gary amounts to $78,000 and by Mary amounts to $52,000. These values were limited to because of the risk basis rules.

Gary (General Partner - 60%) Mary (General Partner -40%) Tax Basis At Risk Basis Tax Basis At Risk Basis Begining Basis 60,000 60,000 40,000 40,000 Recourse Debt 18,000 18,000 12,000 12,000 Non Recourse Debt 60,000 40,000 138,000 78,000 92,000 52,000 Operating Loss (120,000) (80,000) Deductible Loss (78,000) (52,000) Ending Basis 18,000 0 12,000 0

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