Every taxpayer who has an ownership stake in a partnership needs to continuously track their tax basis in the partnership. Do you know the tax basis of your partnership interest?

Determining and tracking the tax basis in a partnership interest (i.e., the cost for tax purposes of an ownership share in a partnership) is critical because it determines a partner’s:

• Limits for loss deductions;
• Taxable distributions and basis for non-cash distributions; and
• Gain or loss on the disposition of their partnership interest.

The tax basis of a taxpayers’ partnership interest can generally be calculated as follows:

• Value of the initial contributed property (i.e., the adjusted basis of the property in the hands of the contributing partner at the time of the contribution, plus any gain recognized under internal revenue code section 721(b);
• PLUS – (1) taxable and non-taxable allocated income, (2) excess of deductions for depletion over the basis of depletable property, (3) tax basis of additional assets contributed, (4) partner’s share of an investment credit recapture adjustment to any partnership property basis that was reduced when the credit was taken, and (5) any increase in the partner’s share of liabilities; and
• LESS – (1) tax basis of withdrawals or distributions to the partner, (2) nondeductible and deductible expenses and losses, (3) deductions for oil and gas depletion, and (4) any decreases in the partner’s share of liabilities.

Partner’s tax basis computations can be extremely complex. Contact Flexible Accounting Services of the Triangle and let our tax professionals assist you in determining and tracking your partnership interests.