Partnerships: partner basis, allocations and elections

TCP Chapter 9 · Area II · Blueprint II.C

Partnerships are the most flexible business form and the most heavily tested one in TCP. Every question comes back to a partner's outside basis: what goes in when property and debt are contributed, what comes out when cash and property are distributed, how a partner who works for the partnership is paid, what happens when a partner sells or leaves, and when the partnership adjusts the basis of its own assets. Tessa and Leo follow Oak & Iron Furniture LLC, taxed as a partnership and owned 40% by Grace Kim, 40% by Hector Alvarez and 20% by Tomas Reed. Figures are for 2026.

In this chapter

Contributing property and debt to a partnership
Outside basis, liabilities and annual adjustments
Partners who work for the partnership
Nonliquidating distributions
Liquidating distributions
When a partner sells mid-year
The buyer's basis step-up: §754 and §743(b)
Partnership elections and the tax year
Reviewing a partner's basis schedule

This chapter has 9 lessons, 50 practice MCQs with explanations and 20 simulations, plus flashcards and a recall sheet.

What this chapter covers

§722 basis and holding period
§752 recourse and nonrecourse debt
§704(c)
services by a partner
property distributions
partnership elections
sale of an interest and §743(b)

Chapter 8: S corporations: shareholder basis and transactions · Chapter 10: Trusts