The basis of partnership property is adjusted as a result of the transfer of an interest in a partnership by sale or exchange or on the death of a partner only if the election provided by section 754 (relating to optional adjustments to the basis of partnership property) is in effect with respect to the partnership.Whether or not the election provided in section 754 is in effect, the basis of partnership property is not adjusted as the result of a contribution of property, including money, to the partnership.T2 is treated as transferring 0 of the basis adjustment to T3 with the gift of the partnership interest.If a transferee receives a distribution of property (whether or not the transferee has a basis adjustment in such property) in liquidation of its interest in the partnership, the adjusted basis to the partnership of the distributed property immediately before the distribution includes the transferee's basis adjustment for the property in which the transferee relinquished an interest (either because it remained in the partnership or was distributed to another partner).
A transferee's share of the adjusted basis to the partnership of partnership property is equal to the sum of the transferee's interest as a partner in the partnership's previously taxed capital, plus the transferee's share of partnership liabilities.
Any basis adjustment for property in which the transferee is deemed to relinquish its interest is reallocated among the properties distributed to the transferee under § 1.755-1(c). Each partner originally contributed ,000 in cash, and PRS used the contributions to purchase five nondepreciable capital assets. After five years, PRS's balance sheet appears as follows: A sells its interest to T for ,000 when PRS has an election in effect under section 754.
T receives a basis adjustment under section 743(b) in the partnership property that is equal to ,000 (the excess of T's basis in the partnership interest, ,000, over T's share of the adjusted basis to the partnership of partnership property, ,000).
In the case of a gift of an interest in a partnership, the donor is treated as transferring, and the donee as receiving, that portion of the basis adjustment attributable to the gifted partnership interest.
The provisions of this paragraph (f) are illustrated by the following example: A, B, and C form partnership PRS.
T2 has a basis adjustment under section 743(b) of 0.