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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 like 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 can be in another form, such as interest or rent payments. These payments are not considered distributions. If a payment is treated as a distribution, it falls under one of two categories: liquidating distribution or non-liquidating distribution. A liquidating distribution occurs when the partnership closes and distributes all its property to the partners, or when the partnership redeems the interest of a partner who retires. We will not be discussing liquidating distribution in this session. We will be focusing on non-liquidating distribution, which refers to any distribution from a continuing partnership to a continuing partner. There are two types of non-liquidating distribution: draw and partial liquidation. A draw is a distribution of a partner's share of current or accumulated profit, while a partial liquidation reduces the partner's interest in the partnership capital without completely liquidating it. Distributions from a partnership can be either proportionate or disproportionate. For our purposes, we will assume we are dealing with non-liquidating and proportionate distribution. In general, neither the partner nor the partnership recognizes any gain or loss on proportionate non-liquidating distribution. The partner takes the carryover basis of the assets distributed, and the basis of the partnership interest is reduced by the amount of cash and basis property distributed. Gain is only recognized if the cash received exceeds the partner's adjusted outside basis and the partnership interest. Additionally, a partner's share of the partnership debt is treated as a cash distribution. Loss cannot be recognized on a proportionate non-liquidating distribution. Property distribution, on the other hand, does not recognize gain in general. If the inside basis...