Liquidating property distribution depreciation


Basis Allocation for Noncash Property Noncash property is bifurcated into two categories; basis is allocated to the assets in these categories in the order detailed in Sec. This allocation scheme was changed by the TRA '97 and IRSRRA '98.

Basically, the categories and allocation order have remained the same; however, the pre-TRA '97 allocation scheme considered only the adjusted basis of property distributed.

Thus, a partner's outside basis is reduced to zero; the excess is capital gain. 733 rule that a partner's outside basis can never be negative. A, whose predistribution basis is 0,000, receives a cash distribution of 0,000.

Her outside basis is reduced to zero; she reports a ,000 capital gain (0,000-0,000).

The new allocation scheme considers adjusted basis, FMV and unrealized appreciation and depreciation.

The allocation of basis among noncash assets requires the bifurcation of such assets into two categories.

Distributions affect a partner's basis before his share of deduction and loss items is considered, because (1) distributions of cash in excess of basis generate capital gain and (2) the Sec.Recent final regulations provide further guidance.(1) These changes have had a major effect on the basis of property distributed to partners.This article reviews the property distribution rules in light of the changes to Sec.Cash distributed to a partner is the first item to be considered when applying the distribution rules (except when Sec. This is true whether or not the distribution is liquidating.


If the cash distributed is greater than the partner's basis before distribution, it triggers a capital gain to the extent of the excess.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).


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