In short
Inside basis is a partnership's tax basis in its own assets. Property a partner contributes keeps the partner's adjusted basis, so the partnership's inside basis starts out equal to the partners' total outside basis, ignoring liabilities.
Key takeaways
- The two can drift apart, for example when a partnership interest is bought or inherited.
- A section 754 election adjusts inside basis to reflect the new partner's outside basis.
- The partnership's holding period for contributed capital assets and section 1231 property includes the partner's.
Where it's tested
REG: Partnership Taxation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A partner contributes equipment with an adjusted basis of $40,000 and a fair value of $60,000 to a partnership. What is the partnership's basis in the equipment?