However, certain types of distributions and any distributions that exceed the partner's basis may result in gains or losses that must be reported for the year in which they occur.To understand the taxation of partnerships and distributions, it is necessary to know the 2 types of tax bases concerning partnerships.
Generally, the carryover basis of each property will be equal to the partnership's basis in the property, but since the total of the property basis cannot be greater than the partner's outside basis minus any money received, then any excess basis must be allocated among the properties.
Basis must 1 be allocated to unrealized receivables and inventory items.
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.
If a distribution consists of unrealized receivables or substantially appreciated inventory items, defined as having a FMV exceeding 120% of the partnership's adjusted basis for the property, then the exchange may be treated as a sale or other taxable exchange, unless the partner contributed the property or the distribution was a distributive share or guaranteed payment to a retiring partner or a deceased partner's successor in interest.
Any basis increase should 1 If there is a decrease in basis, then the decrease should be allocated proportionally to the properties with unrealized depreciation; then any remaining basis decrease should be allocated to all properties in proportion to their basis.
Losses are only recognized in a liquidating distribution that consists of money, unrealized receivables, or inventory.
The book gain or loss on the constructive sale is apportioned to each of the partners' accounts.
Generally, there are no tax consequences of a current property distribution — there is never a taxable gain or loss, either to the partnership or to the partner.
Generally, losses are only recognized in a liquidating distribution.