Bart contributes $100,000 to the Fish Partnership for a 40% interest.During the first year of operations, Fish has a profit of $20,000.At the end of the first year, Fish has outstanding loans from the following banks. $$\begin{array} { l r }
\text { First Bank (recourse) } & \$ 10,000 \
\text { Second Bank (nonrecourse) } & 30,000
\end{array}$$ What is Bart's at-risk basis in Fish at the end of the first year?
A)$100,000
B)$108,000
C)$112,000
D)$124,000

Question

Bart contributes $100,000 to the Fish Partnership for a 40% interest.During the first year of operations, Fish has a profit of $20,000.At the end of the first year, Fish has outstanding loans from the following banks. $$\begin{array} { l r } 
\text { First Bank (recourse) } & \$ 10,000 \
\text { Second Bank (nonrecourse) } & 30,000
\end{array}$$ What is Bart's at-risk basis in Fish at the end of the first year?
A)$100,000
B)$108,000
C)$112,000
D)$124,000

Quizplus · Accepted Answer

Bart's initial contribution is $100,000. His share of the profit is 40% of $20,000, which is $8,000. Recourse loans increase the at-risk basis, so Bart's share of the $10,000 recourse loan is $4,000 (40% of $10,000). Nonrecourse loans do not increase the at-risk basis. Therefore, Bart's at-risk basis is $100,000 + $8,000 + $4,000 = $112,000.