Liquidating property distribution depreciation
For many years, the basis of property to distributed partners was allocated under Sec.
732(c) without regard to the property's fair market value (FMV).
704(d) loss limitation rule disallows a partner's loss deductions to the extent his distributive share of loss exceeds his basis after distributions, but before losses.
The sequence of basis adjustments is summarized as follows: Partner's basis adjusted for liabilities Partnership contributions Distributive share of partnership income and gain items Basis before distributions - Distributions from the partnership to the partner Basis before losses -Distributive share of partnership deduction and loss items Ending basis When considering partnership distributions, the starting point is a partner's basis before distributions (i.e., the basis available to be adjusted for the effect of distributions).
When a partner receives property other than cash, two things occur simultaneously: (1) he takes a basis for the property distributed (under Sec. 732(a) and (b), the ceiling on the amount of basis allocated to noncash property is the outside basis remaining after reduction by any cash distribution (for both liquidating and nonliquidating distributions).
Category 2 contains all other assets (i.e., noncash, nonhot assets).732(c) and compares the treatment of such distribution to partners before and after the law changes, for both nonliquidating (i.e., current) and liquidating distributions.Many examples are provided throughout the article,(2) as are planning opportunities.Example 3: B, a partner in BCD Parnertship, has an ,000 predistribution outside basis.
He receives a ,000 cash distribution and two parcels of land.
The new allocation scheme considers adjusted basis, FMV and unrealized appreciation and depreciation.