Code of Federal Regulations

Example (1). J and K, as equal partners, form partnership JK on January 1, 1975. Partnership JK is engaged solely in an activity described in section 465(c)(1). On January 1, 1975, each partner contributes $10,000 in cash from personal assets to JK. On July 1, 1975, JK borrows $40,000 (of which J's share is $20,000) from a bank under a nonrecourse financing arrangement secured only by the new equipment (for use in the activity) purchased with the $40,000. On September 1, 1975, JK reduces the amount due on the loan to $36,000 (of which J's share is $18,000). On October 1, 1975, JK distributes $3,000 to each partner. For taxable year 1975, JK has no income or loss. Although J's basis in the activity is $25,000 ($10,000 $18,000—$3,000) J's amount at risk on the effective date is $7,000 determined as follows:

Code of Federal Regulations 149

Initial amount at risk	$10,000
Plus: Items which increased basis other than amounts described in sec. 465(b) (3) or (4)	0
Total	10,000
Less: Distribution	3,000
J's amount at risk on effective date	7,000

Code of Federal Regulations

Example (2). Assume the same facts as in Example (1) except that JK has a loss (as described in section 465(d) for 1975 of which J's share is $12,000. Although J's basis in the activity is $13,000 ($10,000 $18,000—($3,000 $12,000)) J's amount at risk on the effective date is $7,000 determined as follows:

Initial amount at risk	$10,000
Plus: Items which increased basis other than amounts described in sec. 465(b) (3) or (4)	0
Total	10,000
Less: Distribution	3,000
Portion of loss ($12,000) in excess of portion of basis not at risk ($18,000)	0
Total	3,000
J's amount at risk on effective date	7,000

Code of Federal Regulations

Example (3). Assume the same facts as in Example (1) except that JK has a loss (as described in section 465(d) for 1975, and J's share is $23,000. J's basis in the activity is $2,000 ($10,000 $18,000—($3,000 $23,000)). The amount at risk on the effective date is determined as follows:

Initial amount at risk	$10,000
Plus: Items which increased basis other than amounts described in sec. 465(b) (3) or (4)	0
Total	10,000
Less: Distribution	3,000
Portion of loss ($23,000) in excess of portion of basis not at risk ($18,000)	5,000
Total	8,000
J's amount at risk on the effective date	2,000

Code of Federal Regulations

[T.D. 7504, 42 FR 42198, Aug. 22, 1977]

CFR

7.465-5—Examples.

Code of Federal Regulations

Code of Federal Regulations

Code of Federal Regulations

Code of Federal Regulations