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Adding a new partner in a partnership has several financial and legal implications. Let\u2019s say you and your partners are planning to admit a new partner. The new partner will acquire a one-third interest in the partnership by making a cash contribution to it. Let\u2019s further assume that your bases in your partnership interests are sufficient so that the decrease in your portions of the partnership\u2019s liabilities because of the new partner\u2019s entry won\u2019t reduce your bases to zero.<\/p>\n
Not as simple as it seems<\/strong><\/p>\n Although the entry of a new partner appears to be a simple matter, it\u2019s necessary to plan the new person\u2019s entry properly in order to avoid various tax problems. Here are two issues to consider:<\/p>\n First, if there\u2019s a change in the partners\u2019 interests in unrealized receivables and substantially appreciated inventory items, the change is treated as a sale of those items, with the result that the current partners will recognize gain. For this purpose, unrealized receivables include not only accounts receivable, but also depreciation recapture and certain other ordinary income items. In order to avoid gain recognition on those items, it\u2019s necessary that they be allocated to the current partners even after the entry of the new partner.<\/p>\n Second, the tax code requires that the \u201cbuilt-in gain or loss\u201d on assets that were held by the partnership before the new partner was admitted be allocated to the current partners and not to the entering partner. Generally speaking, \u201cbuilt-in gain or loss\u201d is the difference between the fair market value and basis of the partnership property at the time the new partner is admitted.<\/p>\n The most important effect of these rules is that the new partner must be allocated a portion of the depreciation equal to his share of the depreciable property based on current fair market value. This will reduce the amount of depreciation that can be taken by the current partners. The other effect is that the built-in gain or loss on the partnership assets must be allocated to the current partners when partnership assets are sold. The rules that apply here are complex and the partnership may have to adopt special accounting procedures to cope with the relevant requirements.\u00a0<\/p>\n Keep track of your basis <\/strong><\/p>\n When adding a partner or making other changes, a partner\u2019s basis in his or her interest can undergo frequent adjustment. It\u2019s imperative to keep proper track of your basis because it can have an impact in several areas: gain or loss on the sale of your interest, how partnership distributions to you are taxed and the maximum amount of partnership loss you can deduct.<\/p>\n Contact us if you\u2019d like help in dealing with these issues or any other issues that may arise in connection with your partnership.<\/p>\n \u00a9 2022<\/em><\/p>\n <\/body> Adding a new partner in a partnership has several financial and legal implications. Let\u2019s say you and your partners are planning to admit a new partner. The new partner will acquire a one-third interest in the partnership by making a cash contribution to it. Let\u2019s further assume that your bases in your partnership interests are […]<\/p>\n","protected":false},"author":1,"featured_media":146,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"pagelayer_contact_templates":[],"_pagelayer_content":"","footnotes":""},"categories":[1],"tags":[],"class_list":["post-147","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/posts\/147","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/comments?post=147"}],"version-history":[{"count":1,"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/posts\/147\/revisions"}],"predecessor-version":[{"id":148,"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/posts\/147\/revisions\/148"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/media\/146"}],"wp:attachment":[{"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/media?parent=147"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/categories?post=147"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/ift.tax\/blog\/wp-json\/wp\/v2\/tags?post=147"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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