These days, entities classified as partnerships for income tax purposes often hear the calling from partners to monetize a portion of the value the enterprise owns, even though those partners are not yet ready to sell their partnership interests. A recent article by Tampa Bay Senior Manager, Nathan Smith, discusses different way that partnerships can accomplish this.
The tax basis of one’s partnership interest is the key determinant of whether gain recognition is appropriate upon receipt of current cash distributions. A partner’s tax basis in his partnership interest initially is established by the amount of money and the adjusted basis of property contributed by him to the partnership, or by his cost of such interest if acquired from another partner. A partner’s basis in his partnership interest also includes any increase in a partner’s share of the liabilities of a partnership, or any increase in a partner’s individual liabilities by reason of the assumption by such partner of partnership liabilities. The manner in which partners are considered to “share” in the liabilities of the partnership is an important factor in the determination of each partner’s adjusted basis in his partnership interest.
For more information about the implications of making debt financed distributions, read the full article here or contact Nathan Smith at NTSmith@cbiz.com or 727.572.1400.