@nexchap
@mlpabc1980
First, nexchap, thanks for all the information you've provided across these MLP related questions.
I've been trying to figure out the at-risk limits myself. In this case, though, I think your answer to the at-risk question needs more context. The IRS asks whether the partner has ANY amount of investment NOT at-risk. This isn't the same as saying whether you have simply capital is at risk. If the partnership interest is in a MLP that has non-recourse financing, then there is an amount of investment representing the partner's interest (in partnership assets) that is not at risk. So at-risk loss limits, if any, must be checked even when the capital account is above 0 and there was a loss. From the instructions to Form 6198:
"File Form 6198 if during the tax year you, a partnership in which you were a partner, or an S corporation in which you were a shareholder had any amounts not at risk (see Amounts Not at Risk, later) invested in an at-risk activity (defined below) that incurred a loss."
In other words, Form 6198 has to be filled out with an MLP like this case. If at-risk loss limits don't apply, there's a good chance with many MLP situations that the passive-activity loss limits will kick in. The net change on Form 1040 might not be great if one has neglected to check the at-risk loss limits and losses are suspended in PAL.
In the scenario where the capital account crosses into negative territory, the at-risk loss limits probably begin to kick in. This is where a difference maybe starts to happen. Any losses that might have survived all loss limitations in the prior year or two might get "recaptured" as income this year to bring amount at-risk back up to zero. **I'm still trying to get my head around this text in Publication 925, particularly the last sentence:
"Recapture Rule
If the amount you have at risk in any activity at the end of any tax year is less than zero, you must recapture at least part of your previously allowed losses. You do this by adding to your income from the activity for that year the lesser of the following amounts.
The negative at-risk amount (treated as a positive amount); or
The total amount of losses deducted in previous tax years beginning after 1978, minus any amounts you previously added to your income from that activity under this recapture rule.
Don’t use the recapture income to reduce any net loss from the activity for the tax year. Instead, treat the recaptured amount as a deduction for the activity in the next tax year."
