What is Partnership liabilities and basis?
In short
An increase in a partner's share of partnership liabilities is treated as a cash contribution that increases outside basis, and a decrease is treated as a cash distribution that reduces it.
Key takeaways
- Recourse liabilities are shared by the partners who bear the economic risk of loss.
- Nonrecourse liabilities are generally shared in proportion to profits.
- A deemed distribution larger than outside basis produces gain.
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 has an outside basis of $20,000, which includes a $12,000 share of partnership liabilities. The partnership repays all of its debt. What is the tax consequence to the partner?