Tax question: "all or some investment "at-risk" ? | MLPs Message Board Posts

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Msg  13214 of 80548  at  4/13/2010 7:29:00 PM  by


 In response to msg 13213 by  aarod
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Re: Tax question: "all or some investment "at-risk" ?

There are two different ways you can be "at risk" for a partnership investment.  One way is through your capital account, and another way is through recourse liabilities.  The capital account keeps track of the money you originally invested in the partnership - and until it goes down to zero, you still have money that you are at risk of losing for tax purposes.  If you have recourse liabilities, this means that the lender could come after you and your assets to satisfy the debt - so you are "at risk" and on the hook there, too (this should never apply to limited partners in an MLP or LLC members;  by definition, you should not be on the hook for the entities' liabilities - if you are, then you have non-tax problems).  Nonrecourse liabilities mean that the lender cannot go after you, they can only go after the collateral, and if the collateral is insufficient to cover the debt, then the lender is SOL - you are not at risk there.
What this means for you as an MLP investor is that, as long as your ending capital account is still above zero, then your entire investment is still at risk.  For these purposes, the fact that you have nonrecourse liabilities in addition is simply ignored - what is important is that the investment that is reflected in your capital account is still at risk of being lost.  Only if your capital account goes below zero (which will take quite a few years, if it happens at all), and only if you then still have nonrecourse liabilities allocated to you, do you need to uncheck that box and worry about Form 6198. 

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