D invested $100,000 in an equipment leasing LLC. He was to be allocated all of the depreciation for the first five years and 40% of the net income before depreciation. The venture borrowed $400,000, non-recourse debt? D’s depreciation for the first year was $200,000 and his share of the net income before depreciation was $60,000.
1. What problems will D encounter in deducting his net loss from the LLC for the first year?
2. Same as a., except the LLC leases real estate, rather than equipment.