Question

19. John contributed $10,000 to form the J&B partnership with Bobby as an equal partner. The partnership suffers a $30,000 loss this year. a. What is john’s distributive share of the loss? b. Compute the amount of loss John may currently deduct on his personal tax return, assuming John and Bobby are equal partners Attach Internal Revenue Code Section

Answer 1

A. John’s distributive share of the loss=30000*50%=15000

B.26 U.S. Code § 165 If you are in a partnership, your share of the business’s losses affects your individual tax return. You can deduct a business loss from personal income the same way a sole proprietor does. The Internal Revenue Service allows you to take a tax deduction for legitimate losses incurred in the operation of your business. However, if your business claims a net loss for too many years, or fails to meet other requirements, the IRS may classify it as a hobby, which would prevent you from claiming a loss related to the business. If the IRS classifies your business as a hobby, you'll have to prove that you had a valid profit motive if you want to claim those deductions. Amount of loss John may currently deduct on his personal tax return=$15000