LO4 Carlos opens a dry cleaning store during the year. He invests $30,000 of his own money and borrows $60,000 from a local bank. He uses $40,000 of the loan to buy a building and the remaining $20,000 for equipment. During the first year, the store has a loss of $24,000. How much of the loss can Carlos deduct if the loan from the bank is nonrecourse? How much does Carlos have at risk at the end of the first year?
2. LO4 Return to the facts of problem 21. In the next year, Carlos has a loss from the dry cleaning store of $18,000. How much of the loss can Carlos deduct? Explain.
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