[Kira K]

i was flipping through my REG notes and i have a question about nonliquidating distributions. my notes say that there will only be a gain if cash received is greater than your basis, and if you also receive property, your basis in the property will be the partnerships basis. is it possible then for you to have a negative basis?

say your partnership basis is 10, they give you a nonliquidating distribution of 8 and property with a basis of 5. is your partnership basis -3 and your basis in the property 5?

FAR (7/2/15) 93
BEC (7/23/15) 88
REG (8/18/15) 92
AUD (10/3/15) 96

[taxgeek83]

Your basis can't go below zero. In your example, your partnership basis would first be reduced by the cash (8), and then by the property (5). Since this takes you below zero, your basis in the property would be reduced by the excess (3) leaving you a basis in the property of 2.

Cash is what it is, so you can't reduce the basis of that. If you exhaust both your partnership interest basis and property basis and still are in the negative, I believe you're required to recognize a gain. Someone can correct me if I'm wrong there though – I can't remember off hand.

[TaxGod]

The money comes out of your basis first so 10-8=2, and then the property takes whatever basis is left over in this situation making the basis in the property 2, and then your partnership basis is reduced to 0. So no negative basis.

AUD: 02/28/15 - 89
FAR: 05/29/15 - 80
BEC: 08/03/15 - 81
REG: 08/27/15 - 76

[Kira K]

ok thanks! i sit for REG tomorrow and am beginning to question everything i thought i knew.

FAR (7/2/15) 93
BEC (7/23/15) 88
REG (8/18/15) 92
AUD (10/3/15) 96

[taxgeek83]

Sounds about like every test I went into. 🙂 Good luck!!

[Author]

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