Video instructions and help with filling out and completing Where Form 4797 Partnership

Instructions and Help about Where Form 4797 Partnership

Hello and welcome to this session we would in which you would look at distribution from a partnership now you just we have to clarify a few things before we start not every payment between the partnership and the partner is considered a distribution many exchanges between the partner and the partnership that could be there could be in some other form other than distribution such as partnership may pay interest or rent to a partner so the part that might be the owner of a building so they may pay pay them rent or the partner of my lend money might lend money the partnership might make guarantee payment we talked about guarantee payment so those are payments but those are not distribution okay if a mate is treated as a distribution it will be fall under one of two categories either liquidating distribution or a non liquidating distribution depending on whether the partner remains a partner in the partnership after the distribution if after the distribution the partner is gone then it's considered liquidating and we don't have to worry about liquidating for this session we're gonna be doing non liquidating so in this session we're gonna be looking at non look what they think so look what they think partner a liquidating distribution occurred when either the partner itself liquidate so the partnership closes the door and go home and distribute all the property to the partners or the ongoing partnership redeems interest of one of its partners so one of the partners basically retired this is called the liquidating that's not what we are doing in this session we are going to be working with non liquidating distribution and now liquidating distribution is you are gonna be working with is any distribution from a continuing partnership to a continuing partner so that the partnership still in business the partner still a partner and would life keeps going two types of non liquidating distribution we have a draw and we have a partial liquidation a draw it's a distribution of partners share of current or accumulated profit and a partial liquidation is produces the partners interest in the partnership capital but does not liquidate so it's a partial it does not look with aid the whole the whole position distribution from partnership might be either proportionate or disproportionate and we don't have to worry about this proportion just we know when the partner receive his or her own share of certain ordinary income producing asset that's called the proportionate distribution this proportionate is when the partners share of certain ordinary income producing assets increases or decreases this is beyond the scope of our purpose of our course so we're gonna assume we're gonna be dealing with non liquidating and proportionate distribution this is the type of distribution we're gonna be working with so in general in general neither the partner nor the partnership recognize any gain or any loss on proportionate non liquidating distribution so if we are working with non liquidating and it's a proportionate there is no gain and no loss usually the partner takes the carryover basis and assets distributed so whatever the basis was it carries over generally speaking and the basis and partnership interest is reduced by the amount of cash and basis property distributed so what happened to your basis your basis goes down in the partnership if they if they make a distribution but what happened you're gonna take over the basis of the assets that they distribute to you the partner recognizes gain under what circumstances so gain is recognized under what circumstances to the extent that cash received exceeds the partner adjusted outside basis and the partnership interest so if your basis was that's for the sake of illustration say your basis were ten thousand this is your basis and they gave you a distribution of twelve thousand twelve thousand equal to the distribution and this is a cash distribution then guess what you have a two thousand dollar gain which you have to pay taxes on it okay so if it's a cash that that's an access of your basis or reduction and partners shares of the partnership debt is treated as a cash distribution or let's assume your basis equal to ten thousand and your share of the liability in the company your share of the debt let's assume equal to 15,000 so your share of the debt is 15,000 let's assume the company pays off the debt so they relieve you of the sly bility that's minus 15 your basis will go down to 0 and you have a $5,000 gain remember basis cannot be negative okay cannot be negative all right so cash payment or the reduction in your share of liabilities is considered a cash country abuse so partner cannot recognize loss on a proportionate non liquidating distribution there is no such thing as losses so the multiple choice if you see the word loss and a liquidation it is can cross that one out okay so property distribution we talked about cash and this is cash this is cash and debt relief now what happened when we have property distribution when I distribute property not cash in general no gain is recognized on the property distributed okay if inside basis of property distributed exceeds the partners outside basis in the partnership the distributed asset takes what's called the substitute basis and we'll see this so the inside basis inside the partnership have a basis greater than the outside the basis for the partner we're going to see an example and the distributed asset takes a substitute basis assets are deemed distributed and basis applied in a certain order so we're gonna see what the order is so if you have a distribution include cash and other assets cash is distributed first then receivable and inventory okay they're called the hot asset or income property asset and then all other assets okay