Hawaii Liquidation of Partnership with Sale of Assets and Assumption of Liabilities
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FAQ
Excess distribution occurs when a shareholder receives a distribution that is over their adjusted basis, which reduces the adjusted basis to zero. Generally, if you receive a distribution in excess of your basis, you must report those excess on your individual tax return subject to capital gains tax.
A liquidating distribution terminates a partner's entire interest in the partnership. A current distribution reduces a partner's capital accounts and basis in his interest in the partnership (outside basis) but does not terminate the interest.
If the partnership decides to liquidate, the assets of the partnership are sold, liabilities are paid off, and any remaining cash is distributed to the partners according to their capital account balances.
How Do You Treat Distributions In Excess Of Basis? As long as the interest in the partnership has been held for long (or short term in this case) a partner receiving distributions exceeding basis receives capital gains (or long or short term, when this happens).
The gain or loss from the sale of a partnership interest is the difference between the sales proceeds received and the partner's tax basis in the interest at the time of the sale.
A sale of a partnership interest requires two transactions: An ordinary income gain/loss reported on Form 4797, Part II, line 10. A capital gain reported on the Schedule D.
A partner will recognize capital gain to the extent of any amount of money distributed that exceeds his outside basis.
How/where to report distribution in excess of basis (LLC)? Yes, if you received a distribution that was more than your adjusted basis, you have taxable income. In most cases, this is a long-term capital gain, which is reported on Schedule D (as a sale with no basis).
Distributions that exceed the stock basis will be generally taxed as long-term capital gains on the personal tax returns of shareholders. Currently, the rate for long-term capital gains is 15 percent. If you need help with S corp distributions in excess of basis, you can post your legal need on UpCounsel's marketplace.
2012 Review Schedule D, Form 8949 and Form 4797 to determine the amount of gain or loss the partner reported on the sale of the partnership interest. After determining a partner sold its interest in the partnership, establish other relevant facts that can impact the tax treatment of this transaction.