Video: Tax Basis vs. At-Risk Basis

In this lesson, Nick Palazzolo, CPA, takes a deep dive into the intricacies of tax basis and at-risk basis, emphasizing their significance in partnerships, though also applicable to other investments. He elucidates the calculation of a partner's tax basis as the original purchase price adjusted for various factors like contributions, depreciation, and losses, which comes into play when determining the gain or loss upon disposal of that interest. Moving on, Nick clarifies the concept of at-risk basis, which is essential in limiting the amount of deductible losses based on the actual economic risk assumed by the taxpayer. Through an engaging walkthrough, he differentiates between recourse and non-recourse loans and their effect on a taxpayer's at-risk basis, further illustrated by a practical example involving a partnership investment. This thorough explanation enables a fuller understanding of how these bases affect the recognition and limitation of losses, a critical component for grasping more complex partnership tax scenarios.