Tax treatment liquidating distribution foreign passive investment


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.

If you sold your partnership interest for $50,000, you would recognize a gain of $40,000, whereas your partner, if she sold at the same price, would recognize no gain.

There are 2 types of distributions: a current distribution decreases the partner's capital account without terminating it, whereas a liquidating distribution pays the entire capital account to the partner, thereby eliminating the partner's equity interest in the partnership.

When a partner contributes property to the partnership, the partnership's basis in the contributed property is equal to its fair market value (You contribute land to a partnership with a tax basis of $10,000 and a FMV of $50,000. Since the FMV of the land is also $50,000, you each have equal equity in the partnership, and the total inside basis of the partnership is equal to $100,000, your combined contributions.

However, your outside basis differs from your partner's, since your outside basis is $10,000, while that of your partner's is $50,000.

Generally, losses are only recognized in a liquidating distribution.