Distribution from Partnership- Current (Non-liquidating)

How is a current (non-liquidating) distribution from a partnership taxed? This CPA Exam REG lesson explains proportionate current distributions: how they reduce a partner's outside basis, when a cash distribution triggers a taxable gain, the order in which cash, hot assets, and other property are allocated, and how substitute basis works. Built for accounting students and CPA, EA, and CMA candidates studying the taxation of partnerships. Try it free at farhatlectures.com — interactive exercises, lectures, simulations, cases, multiple choice, and AI tools for CPA, CMA, EA and students. Video Timeline & Key Concepts: 0:00 — Introduction 0:00 — Distribution vs. other payments: distinguishing distributions from interest, rent, and guaranteed payments 2:43 — Liquidating distributions: when a partnership ends or a partner retires 3:23 — Non-liquidating (current) distributions: the partnership continues and the partner stays involved 4:04 — Proportionate vs. disproportionate: focusing on proportionate distributions based on equity stake 4:55 — General rule: no gain or loss is usually recognized on a proportionate current distribution 6:50 — Basis reduction: distributions reduce outside basis, and cash exceeding basis is a taxable gain 9:31 — Asset allocation order: cash first, then receivables and inventory (hot assets), then other property 10:05 — Worked scenarios (A through F): cash and property distributions, debt relief, and substitute basis Frequently Asked Questions: What is a current (non-liquidating) partnership distribution? A current distribution occurs while the partnership continues to operate and the partner remains a member. It transfers cash or property to the partner without ending their interest in the partnership. Is a partner taxed on a current distribution? Usually not. A proportionate current distribution generally produces no gain or loss. Instead, it reduces the partner's outside basis in the partnership interest. When does a current distribution create a taxable gain? A gain is recognized when the cash distributed (including debt relief treated as cash) exceeds the partner's outside basis. The excess is taxed as gain, typically capital in character. In what order are distributed assets applied against basis? Distributions are applied in a set order: first cash, then receivables and inventory (hot assets), and finally other property. This ordering determines how basis is reduced and allocated. What is a substitute basis in a partnership distribution? When the partnership does not have enough basis to fully cover distributed property, the partner takes a substitute basis, meaning the property's basis is limited to the partner's remaining outside basis rather than the partnership's carryover amount. #CPAexam #CMAexam #enrolledagentexam #accountingcourses #collegecourses #courses #REG #taxation #partnership #partnershipdistributions #ProfessorFarhat #accountingstudents