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True. A partner's distributive share of partnership losses does not decrease his or her tax basis in the partnership interest.
What is partnership interest?
Partnership interest is an ownership stake in a partnership, which is a type of business entity. It is similar to stock ownership in a corporation, but with unique aspects and tax implications. Partners in a partnership typically receive a share of the company's profits, losses, and assets in proportion to their ownership interest. They may also be responsible for the management of the business and making decisions on behalf of the partnership. Partnership interest can be transferred or sold to other parties, and can also be used to raise capital for the business. The tax implications of partnership interest can vary depending on the type of partnership, so it is important to understand the rules for taxation before investing in or starting a partnership.
The tax basis in the partnership interest is determined by the partner's capital contributions, income, gains, and losses. Even though partnership losses are nondeductible, they still increase the partner's tax basis in the partnership interest, which decreases the partner's tax liability when the partnership is dissolved or when a partner sells their partnership interest.
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