A finished ACC-661 Topic 7 passive investor loss projection example, applying the three loss limits over three years and showing a seller-financed note blocking losses the investor expected. Searches like "acc 661 topic 7 assignment example", "acc661 topic 7 sample" and "acc-661 topic 7 example" land here.
What a finished ACC-661 Topic 7 passive investor loss projection looks like
The projection starts from the investor's share of three things: $60,000 of capital, $200,000 of the partnership's bank mortgage and $100,000 of a note held by the property's seller. All figures are illustrative. Basis under section 752 counts all three, $360,000. Section 465 counts the bank loan as qualified nonrecourse financing but not the seller's note, so his amount at risk is $260,000. Section 469 treats the rental as passive, and as a limited partner he cannot claim the active participation allowance, which his income would phase out anyway. Against $45,000 of passive income from another rental, he deducts $45,000 and suspends $75,000 in each of the first two years. By year three the at-risk amount has run down to $20,000, so $100,000 is blocked before the passive rules apply. Refinancing the seller's note would clear it.
How an ACC-661 Topic 7 example is structured
Three years run across the projection and three limits run down it, basis first and passive activity last. It opens with the investor's goal, stated as he put it, because the projection exists to test that goal. His share of capital and debt comes next, with each liability classified for basis and separately for at-risk purposes. Year one follows through all three limits, with the surviving and suspended amounts shown after each. Years two and three repeat the pattern, and year three is where the at-risk limit binds for the first time. A fifth part tests the planning options: refinancing the seller's note, adding passive income and timing a disposition that would release the suspended losses. The sixth part addresses the investor's idea of converting to a general partner. It closes with the defended position: no offset against salary, and a disposition plan instead.
One share, two debt classifications
The bank mortgage and the seller's note both add to basis, but only the mortgage counts as qualified nonrecourse financing, so the at-risk amount is $100,000 lower.
Passive by nature, not by effort
A rental activity is passive under section 469 whatever the investor does, and a limited partner interest also shuts him out of the active participation allowance.
Year three, where the at-risk limit binds
Two years of $120,000 losses cut his at-risk amount to $20,000, so most of year three's loss is blocked before the passive rules see it.
Suspended losses tracked by limit
The projection keeps losses suspended under section 465 separate from those suspended under section 469, because each is released by a different event.
A refinancing that changes the answer
Replacing the seller's note with bank financing before year three would raise the at-risk amount by $100,000 and move the whole loss on to the passive test.
Conversion to a general partner rejected
Becoming a general partner would add personal liability and still leave the loss passive, since his income already eliminates the rental allowance, so the projection rejects it.
Where marks go in ACC-661 Topic 7
Projections here lose the most by treating the investor's basis as the only limit. A paper that finds $360,000 of basis, deducts $120,000 against salary each year and stops has applied one test of three, and the passive rules alone would reverse the result. Counting the seller's note as at risk misreads the qualified nonrecourse financing rule, which excludes financing from the person who sold the property. Papers that suspend losses without recording which limit suspended them cannot say what would release them, and the answer differs for each limit. Proposing a general partner conversion to escape the passive rules misunderstands how rental activities are treated. A projection that runs one year only misses year three, where the facts are built to bite, and a recommendation that never mentions disposition leaves the suspended losses with no plan.
Get an ACC-661 Topic 7 example written to your instructions
Send your ACC-661 Topic 7 instructions, the rubric and the investor, entity and financing facts your section supplied. A custom example is written to them, with each limit applied across the years the case covers, each liability classified, suspended losses tracked by limit and a planning position defended with citations, in 24 to 48 hours. The first one is free and is not tax advice.
ACC-661 Topic 7 questions, answered
Why does the seller's note not count as at risk?
Nonrecourse debt generally does not increase an amount at risk, and the exception for real property, qualified nonrecourse financing, requires the loan to come from a qualified person such as an unrelated commercial lender. The person who sold the property is excluded from that definition. The seller's note still counts for basis under section 752, which is why the two figures differ by $100,000.
When are suspended passive losses released?
Generally when the investor disposes of his entire interest in the activity in a fully taxable transaction to an unrelated party, under section 469(g), or earlier to the extent he has passive income to absorb them. Losses suspended under the at-risk rules are released differently, when the amount at risk increases. The projection tracks the two separately so each can be matched to the event that frees it.
Would his income matter if he were not a limited partner?
For rental real estate, the active participation allowance in section 469(i) lets some individuals deduct up to $25,000 of rental losses against other income, but it phases out as modified adjusted gross income rises above $100,000 and is gone at $150,000. On the case's income, well above that range, the allowance would be zero even for a general partner. The projection states the phase-out so the rejection rests on the statute.