26 CFR 7.465-5 - Examples.

§ 7.465-5 Examples.
The provisions of § 7.465-1 and § 7.465-2 may be illustrated by the following examples:
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:
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
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
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
[T.D. 7504, 42 FR 42198, Aug. 22, 1977]

Title 26 published on 2013-04-01

no entries appear in the Federal Register after this date.

This is a list of United States Code sections, Statutes at Large, Public Laws, and Presidential Documents, which provide rulemaking authority for this CFR Part.

This list is taken from the Parallel Table of Authorities and Rules provided by GPO [Government Printing Office].

It is not guaranteed to be accurate or up-to-date, though we do refresh the database weekly. More limitations on accuracy are described at the GPO site.


United States Code
U.S. Code: Title 26 - INTERNAL REVENUE CODE