What is Nonliquidating partnership distribution?
In short
In a nonliquidating (current) distribution, a partner generally recognizes no gain or loss. Gain arises only if money distributed, including a reduction in the partner's share of liabilities, exceeds the partner's outside basis.
Key takeaways
- No loss is recognized on a current distribution.
- The partner's basis in distributed property equals the partnership's basis, limited to the partner's outside basis left after any money.
- Distributions that shift a partner's share of hot assets can trigger ordinary income.
Example
A partner with $10,000 outside basis receives $4,000 cash and land with a partnership basis of $9,000: no gain, and the land takes a $6,000 basis.
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 $50,000 cash and is allocated a $20,000 share of partnership liabilities. During the year the partner is allocated $15,000 of income and receives a $10,000 cash distribution. What is the partner's year-end basis?