Liquidating distribution tax treatment

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Initially, your basis is equal to the amount of cash plus your basis -- or cost -- in any property contributed to the business.

Only partners who receive a liquidating distribution of cash may have an immediate taxable gain or loss to report.

Of course you don't have a 1099-B to report the sale and Turbo Tax isn't particularly clear about what to do here despite the statement it makes when it notices a liquidating distribution on a 1099-DIV:-------------------------------------------------------We'll help you work on your cash liquidation distribution of [$ amount] from [company name] a bit later.

Just remember to go to the Investment Income section under Wages & Income.-------------------------------------------------------That sort of suggests you'll encounter some interview questions guiding you to the right answer - after all, Turbo Tax "knows" you got a liquidating distribution - but there is none.

Therefore, partners who have held an interest in the partnership for more than one year as of the date of a liquidating distribution will pay lower rates of tax on the gain than they do on a partnership's operating profit.

Michael Marz has worked in the financial sector since 2002, specializing in wealth and estate planning.

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