Again, in this instance the partnership ends and this leads to the partner no longer being a partner. The computation of gain is made without regard to any other property that may be distributed concurrently. I am assuming you are refering to distributions of property as cash distributions are very straight forward. Finally, there are exceptions and additioanlly information for both kind of distribution. Consequently, if the basis of property distributed exceeds the partner's outside basis in the partnership, the partner's outside basis for the remaining interest is zero. Therefore, the basis of the property received cannot exceed the outside basis of the partnership interest, reduced by any money distributed in the same transaction. Section provides the rules for determining the basis of property received in a distribution. The result may be that some of the basis of the distributed property could disappear. Disproportionate distributions which affect the partner's share of ordinary income property of the partnership. So, the below pertains to property. Any gain recognized in a distribution is treated as gain from the sale or exchange of a partnership interest which is ordinarily a capital gain or loss. In this example, Fred must ignore the NBV and simply reduce his basis to 0.
I am a little confused as to what you don't understand so here is a quick summary of liquidating distributions correct me if I am wrong as I am also now learning this material. However, I do not think there is any kind of trick here. Consequently, if the basis of property distributed exceeds the partner's outside basis in the partnership, the partner's outside basis for the remaining interest is zero. F's basis in the noncash property received is: The partnership generally recognizes no gain or loss on current or liquidating distribution of property, including money, to a partner. There are, however, two exceptions to this general rule. Gain or loss recognition When a partner receives a distribution, Congress generally wanted it treated as a tax-free return of capital because a partner is taxed each year on a distributive share of partnership income, whether or not any actual distribution is made. Although distributions or allocation of partnership losses may reduce a partners basis in the partnership interest to zero, the continuing interest in the partnership remains the same e. Study Questions Make your selection by clicking the appropriate response letter. I am assuming you are refering to distributions of property as cash distributions are very straight forward. The NBV absolutely does not come into play at all. Overview There are three basic types of distributions that can result from a partnership, and different sets of rules govern the income tax consequences of each. Character of gain or loss. In a current distribution, the distributes partners outside basis in the partnership must be reduced by the sum of: Note Effective for partnership distributions after August 5, , the Taxpayer Relief Act of modified the manner in which basis allocations are made when the property's basis exceeds the partners' outside basis. A loss may not be recognized by the distributes partner unless the distribution results in the liquidation of the partner's entire interest in the partnership. Partner's remaining basis A partner's remaining basis in a partnership is determined by first reducing the partner's outside basis by the amount of any money distributed and the adjusted basis of any property other than money distributed. The statutory provisions which govern the treatment of partnership distributions are contained in Sections through of the Code. No gain or loss in recognized. A partner can also receive a liquidating distribution because they are ending the partnership in general. Nonliquidating distributions of cash and other property that will not result in the liquidation of the distributes partner's interest. These types of distributions will be discussed briefly in section C. Specifically, if cash is recieved as well as property you may have to recognize a gain or loss on the distribution. Thus, losses will never be recognized in current distributions. Liquidating distributions of cash and other property that will eliminate a partner's interest in the partnership. So, the below pertains to property. When a partnership distribution is in the form of cash, gain must be recognized by the distributee partner to the extent that the money received exceeds the partner's adjusted basis in the partnership interest at the time of the distribution.
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