Section 5: 23–33%R19

Partnerships

Exam insight

Partnership taxation is the most basis-heavy topic on REG: a partner's outside basis absorbs liabilities, controls how much loss is deductible, and sets the gain on distributions. Nail the basis formula and most partnership questions fall into place.

What AICPA wants you to know

1Apply §721 tax-free formation and identify the service and liability exceptions
2Distinguish inside basis from outside basis
3Compute a partner's outside basis including the share of liabilities
4Identify separately stated items and treat guaranteed payments correctly
5Apply distribution rules for nonliquidating and liquidating distributions
6Recognize §751 hot assets on the sale of a partnership interest

Patterns in this topic

The exam re-skins the same archetypes. Recognize these here, then drill them in the Pattern Lab.

The Passthrough BasisBasis rises with income and contributions, falls with losses and distributions, and never drops below zero.The Passthrough RulesPassthroughs separate what must flow through on its own, and the eligibility and contribution rules gate who gets in and how.

Exam tip

Study smarter: before you expand each card, cover the screen and try to recall what the concept means from its title alone. Retrieving it from memory builds the recall the exam actually tests, and it beats re-reading.