Keep track of a partner’s basis in a partnership interest
Why is it important to keep track of a partner’s basis in a partnership interest and how is it calculated? See Section 705 and consider Sections 721 and 722 (involving non-recognition of gain or loss on transfers to partnerships and basis considerations), 731 through 733 (involving distributions to partners of money or property and basis considerations), and Section 752 (involving a partner’s share of a partnership’s liabilities).
Under what circumstances will a distribution from a partnership to a partner cause the partner to recognize income? Keep in mind that partnerships can distribute all kinds of property as opposed to just money. See Section 731 and assume Section 751(b) is not applicable.
If a partner sells a partnership interest, is it possible for both an ordinary gain or loss and a capital gain or loss to be recognized? Why? See Sections 741 and 751(a). Note that students should have a general understanding of the difference in tax treatments between capital gains and losses and ordinary gains and losses. Astute students may further recognize the various types of capital gain transactions (e.g., Section 1231 gains, collectibles gains, unrecaptured Section 1250 gain, and Section 1202 gains).