[Anonymous]

So Wiley covers this fairly well, but they make no mention of the situation where the outside basis exceeds inside basis when there’s real estate involved. I understand if the land exceeds outside basis, the partner’s basis will be reduced to zero and whatever the reduction was becomes the basis in the land.

What if outside basis is 10,000, land with a basis of 5,000 and FMV of 6,000 is transferred in a liquidating distribution? Will the basis in the land become 10,000 and it’s essentially transferring a built-in loss?

[s2sylvir]

Nope, it's $5k still. The remaining basis just gets “lost”. Nothing happens to it. Since it's liquidating, company ceases to exist and no one cares at the end of the day for the remaining basis.

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[Anonymous]

Gotcha. Thanks.

[Anonymous]

S2sylvir is wrong on this one. Basis is not just lost. The basis in the land would be become whatever the partner's basis in the partnership is in the scenario you describe.

If the partnership were just distributing cash and that cash was less than your basis in a liquidating distribution you would have a capital loss. Your basis would not just disappear.

[s2sylvir]

I always thought there was never a gain/loss on partnership distributions, but it seems like there is an exception. My bad OP :O I learned something new myself.

BEC - PASS (79)
AUD - PASS (63, 71, 74, 74, 83)
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[Anonymous]

I think s2sylvir was thinking of parent-sub liquidations where the parent liquidates the subsidiary and the parents basis in the stock they owned in the sub is “lost” (the basis of assets in the sub are carryover basis to the parent and E&P of the sub is added to the parents)

[Anonymous]

Take a look at Regulation Section 1.732-1(c)(1)(ii) and (c)(2)(ii).

[s2sylvir]

@cprv19

Ahaha I wouldn't give me too much credit. I think the lesson is just to do my research to confer with my memory, because it's not always correct… Plus I should have learned already that there are exceptions to everything in REG!!

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AUD - PASS (63, 71, 74, 74, 83)
REG - PASS (88)
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[Author]

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