Question

Jose, Mahlon, and Eric are partners in New Communications Partnership. Jose owns a 50% interest, Mahlon owns a 35% interest, and Eric owns a 15% interest. During the current year (the first year of operation for the enterprise), the business has a loss. Although the partnership is established as a general partnership, Jose functions as the manager and performs all of the day-to-day duties of a chief operating officer. Mahlon and Eric are merely investors who receive monthly reports about the business. At the close of the current tax year, each partner will receive a share of the partnership loss. Which of the partners will be able to deduct his (their) share of the partnership loss?

I. Jose
II. Mahlon
III. Eric
a. Mahlon
b. Jose, Mahlon, and Eric
c. Jose
d. Jose and Mahlon
e. Mahlon and Eric

Answer 1

All partners in a general partnership, which includes Jose, Mahlon, and Eric, can potentially deduct their share of partnership losses on their personal tax returns, provided they meet specific criteria related to their basis and at-risk investment in the partnership.

Step-by-step explanation:

The ability of Jose, Mahlon, and Eric to deduct their share of the partnership loss in New Communications Partnership, which is a general partnership, depends on several factors including their involvement in the business and the tax regulations pertaining to partnership losses. In general, all partners in a general partnership can potentially deduct their share of the business's losses on their personal income tax returns. However, there are limitations based on factors such as the level of active participation, basis in the partnership, and at-risk limitations. Assuming all three partners meet the necessary criteria to deduct losses (for instance, they have sufficient basis and are at risk for the investment), all of them would be eligible to deduct their respective share of the loss from their individual tax returns.