Liquidating distribution two years gaytextdating com
What gives Looking at things logically, assume that R received his ,000 of outside basis by contributing ,000 of cash to the partnership for a 50% interest. Partner S also contributed ,000 for a 50% stake.
The partnership then takes ,000 of the ,000 of cash and purchases property 1.
However, partner S, the other 50% partner, continues to have an outside basis in his partnership interest of ,000, because he is unaffected by the distribution to R.
As a result, if the partnership is liquidated and the remaining ,000 of cash is distributed to S, S will recognize ,000 of loss under the rules discussed below for liquidating distributions.
Under Section 731(b), a partnership that makes a current distribution does not recognize any gain or loss, and a partner who receives a current distribution cannot recognize a loss.
The partner will recognize gain, however, to the extent that the money he receives in the distribution exceeds his basis in his partnership interest (also known as "outside basis") immediately before the distribution.
AB distributes cash of ,000 to A, and A’s ownership decreases from 50% to 30%.
The distribution of ,000 is treated as a current distribution because it is not part of a series of distributions that will result in the termination of A’s interest.
Any gain is treated as gain from the disposition of the partner’s partnership interest, and is thus generally considered capital gain. Because the calculation of A’s gain, if any, is determined before any reduction to A’s outside basis upon the receipt of the property with a FMV of ,000, A recognizes no gain on the distribution because the cash received (,000) does not exceed A’s basis in his partnership interest (,000).
Remember, the partnership had one asset, property 1, with appreciation of ,000.
If S would recognize a ,000 loss on a liquidation of the partnership that follows the distribution to R, then R should be required to recognize ,000, rather than ,000, of gain on a subsequent sale of property 1, so that the total gain recognized by both parties equals the appreciation inside the partnership of ,000. When the pre-distribution bases of the distributed properties (other than money) exceed the partner’s remaining outside basis after reduction for money received, the bases of the properties must be reduced, and this reduction must be allocated among the distributed properties. The total basis of the distributed properties is 0 ( ), A’s remaining outside basis after reduction for money received is 0 (0-).
If the cash distribution is on a stock for which you have a basis, you do not have a taxable event until the distributions exceed the basis. If you have no basis, then you have either a long term or a short term gain.
I find it it easier to run these distributions over to Sch D (8949), but I would always make certain that they appear on the Sch D to match whatever has been reported to the IRS. People come to Accountants Community for help and answers—we want to let them know that we're here to listen and share our knowledge.
He receives a current distribution of $14,000 cash and property 1 with an adjusted basis to the partnership of $8,000 and a FMV of $12,000.