[SkiBum1990]

Some of the Becker explanations to answers are somewhat confusing….

does cancellation of debit decrease your basis in the partnership since increasing your liabilities increases your basis?

and is “relief/reduction” of debt the same treatment??

…some of these explanations have me so confused!!!

"The mind can only absorb as much as the seat can take"

B - 79
A - 68, __ (got bumped from Aug 4 release to Aug 23-THANKS AICPA)
R - Oct
F - Nov (HA! 1 month to study working full-time; love NTS rules)

[SkiBum1990]

I'm thinking…… cancellation of debt is like “BOOT” / increases your basis in partnership…. while relief of your debt to those in partnership is a decrease in your basis…

ugh…anyone?!

"The mind can only absorb as much as the seat can take"

B - 79
A - 68, __ (got bumped from Aug 4 release to Aug 23-THANKS AICPA)
R - Oct
F - Nov (HA! 1 month to study working full-time; love NTS rules)

[taxgeek83]

Think of partner basis in a partnership as the amount of money the partner would be on the hook for if the partnership went bust. In other words, a partner's basis is a combination of money and assets that he puts into the partnership, as well as his share of any liabilities that would come due if the partnership goes down. If the partnership has a debt cancelled, the partner is no longer on the hook for that debt. Therefore, the cancellation of debt decreases his basis. Taking it a bit further, the partner may have to report ordinary income from his share of the cancelled debt, just like he would if he had his own debt (ex. a credit card) cancelled.

Does that help?

[SkiBum1990]

ahhhhhh IC!! What was confusing me was cancellation of debt (relief of liabilities) decreases your basis and is “ordinary income”. I needed to remember to distinguish ordinary income from partnership (increasing basis) and ordinary income from COD (reported as income; ultimately reduces basis)

Thanks for clarification!

"The mind can only absorb as much as the seat can take"

B - 79
A - 68, __ (got bumped from Aug 4 release to Aug 23-THANKS AICPA)
R - Oct
F - Nov (HA! 1 month to study working full-time; love NTS rules)

[taxgeek83]

No problem! As a side note, you will typically find COD income separately stated on the K-1 as it's one of those items whose taxation is situation-specific to each partner. I can't remember if the study materials go into COD income in general, but it's worth noting. If you remember that, it might help you separate the “ordinary income from partnership” vs. “ordinary income from COD” basis issues.

[Skynet]

Let's be serious here.

The Exwife will never allow you to cancel Child Support or Alimony Payments. She will hunt you down one way or the other to get what she is owed no matter what.

[Author]

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