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:

Monosaccharides

The simplest form of carbohydrates, consisting of single sugar molecules like glucose and fructose, that serve as energy sources.

Reducing Sugars

Sugars capable of acting as reducing agents, having free aldehyde or ketone groups that allow them to reduce other compounds, commonly tested by Benedict's or Fehling's solution.

Ketose

A type of monosaccharide (simple sugar) where the carbonyl group is a ketone, found in several biochemical pathways.

Aldose

A type of carbohydrate that contains an aldehyde group as its carbonyl functional group.