Tax Basis - Partner's Basis in Partnership

Partner's Basis in Partnership

A partner's tax basis in the partnership generally equals the adjusted basis of property contributed or cash paid plus any income recognized by the partner on the formation of the partnership. Such income may arise from services performed in exchange for the partnership interest. The member's basis is adjusted each year for his share of the entity's income or loss. Generally, the adjustment cannot reduce tax basis below zero. Similar rules apply for other flow-through entities, such as S corporations and flow-through Limited liability companies. The member's basis is also reduced for distributions, and increased by income recognized upon distributions. Rules vary by country.

Under United States rules, a partner's tax basis is also increased to the extent the partner is considered to have assumed liabilities. The partner's tax basis is decreased to the extent the partner is considered to have been relieved of liabilities. For example, if Ann is a general partner of ABC partnership, Ann's tax basis in the partnership is increased if the partnership borrows money. Special rules apply with regard to nonrecourse debt.