The Tax Effects of a Liquidation of a Partnership

Non liquidating partnership distributions

The value of marketable securities, such as stock investments that are traded on a public stock exchange, and decreases to your share of the partnership's debt are both treated as cash distributions. If any part of the distribution is greater than a partner's basis in the partnership, then the excess is treated as a capital gain. The partners basis in the property becomes whatever his basis in the partnership was before distribution. These rules are beyond the scope of this discussion. However, I do not think there is any kind of trick here.

Finally, there are exceptions and additioanlly information for both kind of distribution. If several properties are distributed to a partner, then basis must be allocated to the individual properties. The inside basis is the partnership's tax basis in the individual assets. These types of distributions will be discussed in section B. No gain or loss in recognized.

The Tax Effects of a Liquidation of a Partnership

Calculate Greg's basis in the land, in the inventory, and in his partnership interest immediately following the distribution. Character of gain or loss.

Generally losses are only

But first focus on understanding the rules above then adding the additional rules will be easy. To be taxed as a liquidating distribution, however, a partner's interest in the partnership must terminate. Regardless of the amount of cash you receive, your basis in the distributed property is never less than zero. 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.

Section provides the rules for determining the basis of property received in a distribution. Generally, losses are only recognized in a liquidating distribution. 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.

The partnership generally recognizes no gainSection provides the rules for

If a partner receives a liquidating distribution then he is liquidated and no longer a partner. The statutory provisions which govern the treatment of partnership distributions are contained in Sections through of the Code. Thus, no loss can be recognized on a distribution of marketable securities.