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Liquidating losses

But if you contributed money or property directly to the corporation, your tax basis is equal to the cash plus the tax basis you had in the property contributed.

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When a corporation decides to shut down, it might liquidate its remaining assets, and even some of its debts, to shareholders.To be taxed as a liquidating distribution, however, a partner's interest in the partnership must terminate.Only partners who receive a liquidating distribution of cash may have an immediate taxable gain or loss to report.When a business operates as a partnership, the partners each report a percentage -- which is usually the same as their percentage of ownership -- of annual earnings on their personal returns.As a result, the tax effects of a partnership that makes liquidating distributions only impacts the partners who receive them.Initially, your basis is equal to the amount of cash plus your basis -- or cost -- in any property contributed to the business.

Your basis increases and decreases over the years for required adjustments to arrive at adjusted basis -- the amount you'll use to calculate gain or loss after the liquidation.

The tax treatment of liquidating distributions of debt to shareholders impacts the amount of gain or loss shareholders report on their tax returns.

Liquidating distributions also has tax implications for the corporation that may need to be reported to the Internal Revenue Service on the company's final return.

If your basis is zero, this means the amount you eventually sell the property for is all taxable gain.

Before you can figure out the tax effects of the liquidation, you'll need to know your adjusted tax basis in the partnership.

The value of marketable securities, such as stock investments that are traded on a public stock exchange, and decreases to your share of the partnership's debt are both treated as cash distributions.