Will gain or loss shall be recognized to a partnership on a distribution to a partner of property?
A partner generally does not recognize gain or loss on a distribution of property from a partnership, with specific exceptions.
Gain Recognition
A partner recognizes gain only when:
- Money (including marketable securities treated as money) distributed exceeds the adjusted basis of the partner's partnership interest immediately before the distribution
- The gain is treated as capital gain from the sale of the partnership interest
Loss Recognition
A partner recognizes loss only when all three requirements are met:
- The adjusted basis of the partner's interest exceeds the distribution
- The partner's entire interest in the partnership is liquidated
- The distribution consists only of money, unrealized receivables, or inventory items
Partnership-Level Treatment
The partnership itself recognizes no gain or loss on any distribution of property (including money) to a partner.
Marketable Securities
Marketable securities are generally for gain recognition purposes, valued at on the distribution date, unless: