Start Liquidating distribution two years

Liquidating distribution two years

A loss results when the liquidating distribution is less than the partner's basis in the partnership.

Earnings are distributed to each partner's capital account from which distributions are charged against.

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.

If the partnership distributes property -- anything other than cash and property treated as cash -- during its liquidation, it has no immediate tax effect.

Upon liquidation of a partnership, the Internal Revenue Service views the distributions as a sale of a partnership interest; as a result, gains are generally taxed as long-term capital gains to partners.

Initially, your basis is equal to the amount of cash plus your basis -- or cost -- in any property contributed to the business.

Your basis increases and decreases over the years for required adjustments to arrive at adjusted basis -- the amount you'll use to calculate gain or loss after the liquidation.

To understand the taxation of partnerships and distributions, it is necessary to know the 2 types of tax bases concerning partnerships.