Don and Hal form DHD Partnership with cash contributions of $25,000 each. Don is a general partner and runs the business; Hal is a limited partner and does not materially participate in the business. The partnership agreement states that Don and Hal share all partnership profits and losses equally. DHD borrows $85,000 from the local bank to purchase equipment. Don signed the note, and he is required to pay the bank if DHD defaults. Don and Hal make no more contributions and take no distributions, and during its first tax year, DHD incurs a net business loss of $100,000.

This is a four-part question.

Question 1: What is Don's adjusted basis in DHD before considering the loss? Question 2: What is Hal's adjusted basis in DHD before considering the loss? Question 3: How much (if any) of the DHD loss can Don deduct on his individual tax return? Question 4: How much (if any) of the DHD loss can Hal deduct on his individual tax return?

a) $110,000; $25,000; $50,000; $25,000

b) $ 67,500; $67,500; $50,000; $50,000

c) $110,000; $25,000; $80,000; $20,000

d) $ 90,000; $45,000; $70,000; $30,000