Question

Mr. Condor began producing picture films in the current year. During the current year, he made the following contributions to his business 1. $10,000 Equipment (adjusted basis to Condor).15,000 (fair market value)....30,000 Loan from First Bank that he personally promised to repay Loan from Second Bank for which he is not personally liable but that is secured by a mortgage on his hom.e... 10,000 Loan from Third Bank for which he is not personally liable but that is secured by equipment used in his business. 20,000 - .25,000 Under the at-risk rules, Mr. Condor is considered to be at risk in the amount of A. $45,000 B. $55,000 C. $60,000 D. $80,000

Answer 1

A taxpayer's initial amount at risk in an activity (sometimes referred to as an "at-risk basis") is calculated by combining the taxpayer's cash investment with any amount that the taxpayer has borrowed and is personally liable or for loan taken by securing it with his personal property. (Sec. 465(b)). But property used for the activity is not included.

Therefore, Mr. Condor is considered to be at risk in the amount of,

Loan from first Bank	$20,000
Loan from second Bank	$10,000
Cash	$10,000
Adjusted basis in equipment	$15,000
Total at risk amount =	$55,000

Therefore answer is option 'B'