3.2 Partner's Basis of Partnership Interest

1. Original Basis

1) Property subject to liability
The basis is reduced by the resulting decrease in the partner's individual liability.

2) Excess Liability: Gain recognized by the partner
The basis is zero

2. Partnership Operation: Partner Basis Formula

1) Effect of subsequent transactions
(1) Subsequent contribution: increase a partner's basis
(2) Subsequent withdrawal: decrease a partner's basis

2) Effect of partnership income/loss (pass thru)
(1) Distributive share of income/gain: the partner's basis increase by ALL INCOME
(2) Distributive share of loss/Expense: the partner's basis decrease by ALL LOSSES

3) Effect of partnership's liability
(1) Increase in the partnership liability: increases each partner's basis
(2) Decrease in the partnership liability: decreases each partner's basis