An annual basis schedule explains why the cash received and income reported can be different.
Begin with the opening outside basis and identify contributions, allocated income, distributions, nondeductible expenditures, losses and changes in the partner’s share of liabilities. Apply the relevant ordering and timing rules instead of netting every item together.
A distribution and an income allocation answer different questions. Allocated taxable income may raise basis even when the partnership keeps the cash. A later cash distribution may reduce basis without creating a second income inclusion. Debt reductions and special distribution rules can alter that result.
Work through an example
Simplified illustration: $20,000 opening basis + $8,000 allocated income − $5,000 cash distribution = $23,000 ending basis, assuming no other items or special rules. The $8,000 allocation is not limited to the $5,000 cash received.
Return to the sources
Separate items keep their character
Certain items pass through separately so the partner can apply the rules appropriate to that item.
The outside-basis rollforward
Track adjustments to the partner’s tax basis for income, distributions, losses and specified expenditures.
Outside basis after a distribution
Connect the amount and basis of distributed property to the reduction in the partner’s outside basis.
Partnership liabilities and deemed cash
Changes in a partner’s share of liabilities can create deemed contributions or distributions.
First edition: November 15, 2026. Educational scope and current links reviewed for this release. Source text and effective dates control.