In short
Partners generally recognize no gain or loss when they contribute property to a partnership in exchange for a partnership interest. A partner's outside basis is the money plus the adjusted basis of property contributed.
Key takeaways
- The partnership takes the partner's basis and holding period in the property.
- A partner who receives an interest for services has taxable income.
- Gain can arise if the partner is relieved of liabilities exceeding their 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?