If partner|ship debt is reduced and a partner is deemed to receive a cash distribution, what impact does the deemed distribution have on the partner if it is in excess of her tax basis? A. The partner will treat the distribution in excess of her basis as ordinary income B. The partner will treat the distribution in excess of her basis as capital gain C. The partner will not ever be taxed on the distribution in excess of her basis D. The partner will not be taxed on the distribution in excess of her basis until she sells her partnership interest
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If a partner receives a cash distribution from the partnership that exceeds their tax basis in the partnership, the impact would typically be:
A. The partner will treat the distribution in excess of her basis as ordinary income.
When a partner receives a distribution exceeding their basis in the partnership, it's considered a taxable event. The excess distribution is treated as ordinary income to the extent of the partner's share of income in the partnership. Any remaining excess distribution beyond the income allocated to the partner is treated as a return of capital, reducing the partner's basis further. If the distribution exceeds the partner's basis entirely, it's considered as gain from the sale or exchange of the partnership interest.