If several properties are distributed to a partner, then basis must be allocated to the individual properties.Generally, the carryover basis of each property will be equal to the partnership's basis in the property, but since the total of the property basis cannot be greater than the partner's outside basis minus any money received, then any excess basis must be allocated among the properties.When a partner receives a property distribution, the holding period for the property is added onto the holding period of the partnership plus the holding period of the partner who contributed the property, if applicable.

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If a distribution consists of unrealized receivables or substantially appreciated inventory items, defined as having a FMV exceeding 120% of the partnership's adjusted basis for the property, then the exchange may be treated as a sale or other taxable exchange, unless the partner contributed the property or the distribution was a distributive share or guaranteed payment to a retiring partner or a deceased partner's successor in interest.

If a partner receives an inventory item from the partnership, and the partner disposes of the item within 5 years, then he must recognize ordinary gain or loss on the property, regardless of whether it would otherwise be a capital asset.

No gain is recognized from a distribution of cash or marketable securities that can easily be converted to cash, unless the distribution is more than the partner's outside basis, in which case, the excess is taxable as a capital gain.

Capital Gain = Cash Distribution – Partner's Outside Basis Distributions are generally made throughout the year, but they are taken into account on the last day of the partnership's tax year.

To minimize capital gains on distributions that may be greater than a partner's equity, the basis is 1 increased by the amount of income earned during the year, then it is decreased by any distributions: any excess distribution over the partner's basis is taxable as a capital gain.

When property is distributed to a partner, then the partnership must treat it as a sale at fair market value ().

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.

Credit unions send this sort of distribution to their depositors when they are liquidated as well.