Do I have this right?
Upon liquidation of a partnership, a partner does not recognize gain on property other than cash in excess of basis) that is distributed to him; rather his basis becomes the "substituted basis" of the property that was held by the partnership?
I guess I am getting S Corps confused with partnerships; they seem so alike in many ways. But when a distribution is made to a shareholder, the amount realized is the gain/loss of FMV over the adjusted stock basis of the shareholder.
Example: Two partners buy a building ($200k) and split the cost equally, form a partnership and contribute the property to the partnership. 50/50 partnership; basis of each partner is $100k. Upon termination, one partner is bought out by the other partner. They get an appraisal on the building and it is $450k. The buying partner says "I'll give you $225k for your share of the building." Now this is cash, so the selling partner realizes a $125k capital gain---basis didn't change just to keep this simple. Now the building must be distributed to the remaining partner. FMV is $450k, adj basis is $100k; does this mean that the remaining partner gets the building with no tax due and his new basis in the building is $200k + $225k (what he paid for other partners share) = $425k? It seems like his basis got a $100k boost with no tax consequence; it doesn't sound right but everything I've read tells me this is correct.
Anyone have any ideas? TIA.
Upon liquidation of a partnership, a partner does not recognize gain on property other than cash in excess of basis) that is distributed to him; rather his basis becomes the "substituted basis" of the property that was held by the partnership?
I guess I am getting S Corps confused with partnerships; they seem so alike in many ways. But when a distribution is made to a shareholder, the amount realized is the gain/loss of FMV over the adjusted stock basis of the shareholder.
Example: Two partners buy a building ($200k) and split the cost equally, form a partnership and contribute the property to the partnership. 50/50 partnership; basis of each partner is $100k. Upon termination, one partner is bought out by the other partner. They get an appraisal on the building and it is $450k. The buying partner says "I'll give you $225k for your share of the building." Now this is cash, so the selling partner realizes a $125k capital gain---basis didn't change just to keep this simple. Now the building must be distributed to the remaining partner. FMV is $450k, adj basis is $100k; does this mean that the remaining partner gets the building with no tax due and his new basis in the building is $200k + $225k (what he paid for other partners share) = $425k? It seems like his basis got a $100k boost with no tax consequence; it doesn't sound right but everything I've read tells me this is correct.
Anyone have any ideas? TIA.
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