Lesson: Formation of a Partnership

In this lesson, Nick Palazzolo, CPA, unpacks the intricacies of partnership formation, with a keen focus on the tax implications and basis rules that come into play when partners contribute property or services. He lays out the general principle that no gain or loss is typically recognized when property is contributed to a partnership, delving into the specifics of how property basis is calculated and transferred within the partnership framework. Using practical examples featuring partners Alice, Bob, and Kelly, Nick clarifies the situational nuances, including contributions of appreciated property versus cash, and the consequences of eventual property sales by the partnership. Moreover, he addresses the effects on individual partners' taxable gains, emphasizing the critical difference between gains realized and those recognized. The lesson is peppered with tips to remember these vital rules and how they could impact multifaceted scenarios, from partnership formation through to liquidation.