Sarah Purchased for $100,000 a 10% Interest in a Business

question 68

Essay

Sarah purchased for $100,000 a 10% interest in a business venture that is not subject to the passive activity rules.
During the first year, her share of the entity's loss was $120,000. At the beginning of the second year, the entity obtained $800,000 of recourse financing. During the second year, Sarah withdrew cash of $20,000, and her share of the entity's loss was $25,000. Calculate the amount of loss that Sarah may claim in each of the two years and determine her at-risk amount at the end of each year.

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Definitions:

Active/Passive

Describes an individual's general approach towards life; active individuals tend to initiate actions and influence their environment, while passive individuals tend to be more reactive and less inclined to seek change.

EVLN Model

A framework describing four different responses individuals can have to dissatisfaction in organizational settings, which include Exit, Voice, Loyalty, and Neglect.

Active

Engaged in action; being in a state of movement, function, or operation.

Destructive

Causing great and irreparable harm or damage.