Series 7 practice questionmediumAlternative Investments — DPPs
Under the at-risk rules for DPPs, a limited partner's deductible losses are limited to:
- AThe amount of their initial cash investment only
- BThe total partnership losses divided equally among all partners
- CTwice their initial investment
- DThe amount they have at risk, including cash invested and recourse loans for which they are personally liable✓ Correct answer
Explanation
Why D — The amount they have at risk, including cash invested and recourse loans for which they are personally liable
The at-risk rules limit a limited partner's deductible losses to the amount they have at risk in the investment. This includes their cash contribution, the adjusted basis of property contributed, and amounts borrowed for which they are personally liable (recourse debt). Non-recourse financing (except qualified real estate non-recourse debt) does not increase a partner's at-risk amount.
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