Partnership Taxation: Partnership Distributions - Lesson 2 - YouTube

Let's do this again but now let's look at instead of Non-liquidating let's look at a

Liquidating distribution.

So basically what it means is the Partner got maybe kicked out so therefore, their ownership

has to go to zero.

Right?

Their ownership, which is their outside basis, has to go to zero.

So let's start over here.

This is called a Liquidating Distribution.

Liquidating Distribution.

So my outside basis is 10.

First case, I'm gonna get cash of two and then 15.

So I'm gonna get cash of two.

But this has to go to zero so I have an eight dollar loss.

That's gonna be an eight dollar loss.

Mmm...okay.

That's gonna be a capital loss.

Instead, I have a basis of 10, I get 15.

It has to go to zero.

I have a five dollar capital gain.

Mmm...okay Property.

Outside basis 10.

Here is the inside basis, again that is the basis of the property inside the Partnership

to the Partnership.

It's either two or it's 15.

When I received this property this has to go to zero.

What does that mean?

It means you always pick it up for, what?

The outside basis.

Why?

Because you cannot have a gain or loss on property.

Remember, no gain or loss on property.

So what is that saying?

No gain or loss on property.

You could have a gain or loss on cash.

Cash is king, cash is cash.

But no gain or loss on property.

If it is a Liquidating Distribution you're withdrawing, you're leaving "Bye-bye!"

Right?

You're going bye-bye which means this has to go to zero.

It's gotta go to zero?

What does that mean?

It means that if its property, forget inside!

Always pick it up for outside basis.

What if it's Non-Liquidating?

Then you pick it up for the lower of inside or outside.

What's lower?

Ten or two?

Two.

So you still have some basis left.

What's lower?

Ten or 15?

Ten.

Boom.

Got to go to...'cause if you put 15 you'd have a gain and no gain on property.

Let's look in our notes.

You'll see an example of this in your notes.

Pretty straightforward.

It says "Non-liquidating Distributions of cash and then of property."

And you can see there is there a gain or loss.

And then you'll see if the basis is eight.

That's the outside basis.

There you have a gain on cash but no gain on property.

Again, zero zero.

It says "a Liquidating Distribution is, in some ways, simpler since the Partner's basis

has to go to zero.

The difference between cash and property is as follows.

Cash, inventory, unrealized receivable distributions, total of cash, unrealized receivable depreciation

distributed to the Partner compared to the Partner's basis.

And then you could have a gain or loss.

Property Distributions are always equal to the Partner's basis."

What is the Partner's basis called?

Their outside basis.

Always equal to what?

Their outside basis.

Now you'll see at the bottom of those examples they note, "Note: if received both cash and

property,� you always know the value of what?

Cash.

Always do cash first, then do property.

So for example, if I came back here and let's say I got cash.

Do the cash first then I'm basically starting with a new basis of eight.

Then I get property.

Pick it up for whatever the lower.

I still have some money.

So always do cash first and then do property.

Because you always know the value.

To summarize, you'll see here, "Non-liquidating.

Lower of inside/outside.

Liquidating, outside basis."

And again, this is your summary for the property other than cash.

Distributed property other than cash.

So again, for property that is what is happening as far as the amounts.

Partner's basis greater than basis.

Asset.

Non-liquidating?

Asset.

Partner's basis less than asset?

Pick it up at Partner's basis.

Okay?

So that's important to understand as far as how they relate.

And you're gonna see that we're gonna go through a lot of questions like this.

Again, and again and again.