When are partnership liquidating distributions required
Instead, gain or loss is delayed until you sell the property.Provided the liquidation terminates your entire interest in the partnership, your tax basis in the distributed property is equal to your adjusted basis in the partnership interest minus the cash distributed to you.When the total amount of cash distributed is more than a partner's basis in her partnership interest, the difference in the two amounts is a gain.
To resolve this disparity, Code § 754 allows the partnership to make special basis adjustments to the inside basis of the partnership assets.No gain or loss is recognized to a partnership on a distribution of property or money to a partner. The one exception is for disproportionate distributions, which are treated as a sale or exchange by the partnership.Comparison to Corporations: Because no gain or loss is recognized on a distribution of money or property to a partner, partners are able to defer recognition of the gain in the appreciated property.Your basis increases and decreases over the years for required adjustments to arrive at adjusted basis -- the amount you'll use to calculate gain or loss after the liquidation.
For example, increasing adjustments are made for additional contributions you make and to reflect your share of partnership income, whereas decreasing adjustments are required for partnership losses and profit withdrawals.A partner’s initial basis in his partnership interest depends on how the partner acquired the interest.