Partner outside basis
A partner's outside basis is their tax investment in the partnership interest. It goes up with contributions, income and their share of liabilities, and down with distributions, losses and liability relief.
Losses are deductible only up to basis, and cash distributions above basis are taxed as gain. A decrease in a partner's share of partnership debt counts as a cash distribution.
Example. Mira contributes $20,000 and takes on a $10,000 share of partnership debt, then is allocated $5,000 of income. Her basis is $35,000.
By Binod Raj Singh, CPA (licensed in Montana) · Updated for the 2026-2027 exam windows · Last updated 2026-11-05