Proportionate liquidating distribution


If the partnership distributes property -- anything other than cash and property treated as cash -- during its liquidation, it has no immediate tax effect.Instead, gain or loss is delayed until you sell the property.The value of marketable securities, such as stock investments that are traded on a public stock exchange, and decreases to your share of the partnership's debt are both treated as cash distributions.When the total amount of cash distributed is more than a partner's basis in her partnership interest, the difference in the two amounts is a gain.



The partnership distributed $40,000 cash to Juliet.A loss results when the liquidating distribution is less than the partner's basis in the partnership.Partners, however, can only take a loss on their returns if it's solely the result of a liquidating distribution of cash, outstanding partnership receivables or inventory items.When a business operates as a partnership, the partners each report a percentage -- which is usually the same as their percentage of ownership -- of annual earnings on their personal returns.

As a result, the tax effects of a partnership that makes liquidating distributions only impacts the partners who receive them.

What is Stephanie’ recognized gain or loss on the distribution?