Liquidating distribution from partnership
The partnership's inside basis of the property carries over to become the partner's basis, thereby reducing the partner's outside basis by the carryover basis.As with the cash distribution, if the FMV of the property exceeds the partner's outside basis in the partnership, then the partner's interest in the partnership is reduced to 0 and the receiving partner's basis in the distributed property equals his outside basis in the partnership before the distribution.In a liquidating distribution, if a partner's outside basis in the partnership exceeds the cash received plus the FMV of any property received, then the partner will recognize a loss to the extent of the excess.So if a partner's outside basis was 0,000 in a partnership, but received ,000 in cash and ,000 worth of inventory items, then the terminating partner would recognize a capital loss of ,000 .The property basis that remains after subtracting the outside basis is taxable as a gain. If distributed property also had a secured liability, then the partner assumes the liability which decreases her share of the partnership's liabilities.
However, your outside basis differs from your partner's, since your outside basis is ,000, while that of your partner's is ,000.
In a liquidating distribution, the basis of property received by a partner is equal to the basis of the partnership interest minus any money received in the same transaction, so the carryover basis in the property can never be greater than the partner's outside basis in the partnership: Partner's Basis in Property in Liquidating Distribution = Partner's Outside Basis – Money Received If a partner has an outside basis of 0,000 and receives a liquidating distribution of 0,000, then a ,000 gain would be recognized, but if the ,000 had been property and the rest cash, then the gain would not be recognized, but the partner's basis in the property would be zero, so taxes would have to be paid on the gain of the property when it is sold: Partner's Basis in Property = 0,000 Outside Basis – 0,000 Cash Received A gain or loss may also be recognized by a partner who contributes property to the partnership that, subsequently, is distributed to another partner within 7 years, in which case, the contributing partner would recognize a gain of the FMV of the property over the partner's original tax basis in the property.
gain shall not be recognized to such partner, except to the extent that any money distributed exceeds the adjusted basis of such partner’s interest in the partnership immediately before the distribution, and loss shall not be recognized to such partner, except that upon a distribution in liquidation of a partner’s interest in a partnership where no property other than that described in subparagraph (A) or (B) is distributed to such partner, loss shall be recognized to the extent of the excess of the adjusted basis of such partner’s interest in the partnership over the sum of— except to the extent provided in regulations prescribed by the Secretary, any interest in a precious metal which, as of the date of the distribution, is actively traded (within the meaning of section 1092(d)(1)) unless such metal was produced, used, or held in the active conduct of a trade or business by the partnership, except as otherwise provided in regulations prescribed by the Secretary, interests in any entity if substantially all of the assets of such entity consist (directly or indirectly) of marketable securities, money, or both, and to the extent provided in regulations prescribed by the Secretary, any interest in an entity not described in clause (v) but only to the extent of the value of such interest which is attributable to marketable securities, money, or both.
If you sold your partnership interest for ,000, you would recognize a gain of ,000, whereas your partner, if she sold at the same price, would recognize no gain.
There are 2 types of distributions: a current distribution decreases the partner's capital account without terminating it, whereas a liquidating distribution pays the entire capital account to the partner, thereby eliminating the partner's equity interest in the partnership.
The book gain or loss on the constructive sale is apportioned to each of the partners' accounts.