When a partner acquires an interest from another partner, the basis calculation is typically as follows:

• The transferee is responsible for paying the transferor for the partnership interest.
• The transferee takes on the proportionate share of partnership liabilities.
• The partner obtains their interest based on the purchase price and their share of partnership liabilities. To determine future taxable gains, losses, and distributions, it is crucial to have this basis.

Let's look at an example.

1. Alex is interested in purchasing a 30% stake in a partnership from Jordan. 
2. Jordan consents to sell the interest for $50,000, and the partnership's total liabilities were $60,000.
3. Alex's liability share is 30%.
4. 30% of 60,000 is equal to 18,000.

Alex's total interest in the partnership has been calculated as:
Cash paid $50,000 + Liabilities of Jordan $18,000 = $68,000

Alex's investment in the partnership would be valued at $68,000. To determine taxable gain/loss in future transactions, including distributions and dispositions, it is important to have this basis.

Alex's share of the partnership would be $68,000. To determine taxable gain or loss in future transactions, including distributions and dispositions, this basis is essential.

What is the distinction between a transferor and a transferee?

• The person or entity who sells or transfers an asset, right, or interest to someone else is called the transferor. In a partnership, the transferor is the current partner selling their interest.
• The transferee is the person or entity that gets the asset, right, or interest from the transferor. In a partnership, this is the individual who acquires or buys the partner's interest.

To put it succinctly:

The transferor surrenders ownership.

The transferee assumes ownership.

What factors lead to an increase and a decrease in partnership?

As various items increase or decrease, a partner's interest in their partnership changes over time. Below is a breakdown:

Items that enhance the basis:

1. The partnership requires additional contributions such as cash, property, or services.
2. The share of partnership income is any portion of taxable income that is allocated, which includes ordinary business income and capital gains.
3. The basis of a partner will increase if the partnership earns tax-exempt income.
4. The basis of each partner increases when they take on more debt in the partnership.

Items that decrease on a regular basis:

1. The partner's basis is reduced when they receive cash or property distributed from the partnership.
2. Allocation of losses to the partner leads to a decrease in their basis if the partnership allocates losses.
3. Certain expenses that are not tax-deductible, such as penalties and fines, decrease the basis.
4. Reducing partnership liabilities occurs when either the partnership repays debt or a partner is relieved of liability.