Partnership liquidating distribution detailed example
To end the partnership, the parties involved sell the property the business owns, and each partner receives a share of the remaining money.Each partner's share depends on the amount of money in the partner's capital account, which is a record of the amount the partner invested and his current level of ownership in the business.
The inside basis is the partnership's tax basis in the individual assets.
Earnings are distributed to each partner's capital account from which distributions are charged against.
However, certain types of distributions and any distributions that exceed the partner's basis may result in gains or losses that must be reported for the year in which they occur.
Sometimes the sale of a company's assets doesn't provide enough money to pay off all the company's debts.
In such a case, the rest of the money comes from the capital accounts of each partner.
In such a case, $6,000 may come from that partner's capital account to pay that debt, while the remaining amount owed comes from partner B's capital account.