Passive, an attorney, invests $200,000 of cash and borrows $800,000 from a bank on a nonrecourse basis to invest in a solar power energy business. Passive hires Sunny to run the business, although Passive has the final word on major decisions. In the first year of operations, the business loses $300,000. Passive’s only other non-portfolio investment is a limited partnership interest in a real estate investment which earns $50,000 during the year.
(a) Discuss the tax consequences to Passive with respect to the $300,000 loss. See Tax Regulation Section 1.469-2T(d)(6).
(b) What results in (a), above, if the loan is a recourse loan?
(c) What results in (a), above, if the real estate limited partnership interest earns $300,000 during the year?