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If there is any excess basis over the partnership's interest, then the assigned bases must be reduced by the excess.Any remaining allocable basis is then assigned to the remaining properties, reduced by any excess basis over the partner's remaining interest.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, 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.
The property basis that remains after subtracting the outside basis is taxable as a gain. If distributed property also had a secured liability, then the partner assumes the liability which decreases her share of the partnership's liabilities.
The other partners' share of liabilities is also decreased by the deemed distribution.
When property is distributed to a partner, then the partnership must treat it as a sale at fair market value ().
The partner's capital account is decreased by the FMV of the property distributed.If you sold your partnership interest for ,000, you would recognize a gain of ,000, whereas your partner, if she sold at the same price, would recognize no gain.