Partnership outside basis — EA Part 2 Widgets

What this does

Walk outside basis in the correct IRS order: increases first, then money distributions, then nondeductibles, then losses. Watch basis never go below zero.

Visual: the path chart is the running basis — the steep drops are where exam traps live.

Rule · order Increases (income, contributions, liability ↑) come before distributions and liability ↓. Nondeductibles next, then losses. Basis never goes below zero.

Inputs

Ordering follows Partner’s K-1 / Pub 541 teaching pattern: income & liability increases first, then distributions & liability decreases, then nondeductibles, then losses.

Beginning outside basis Contributions (money + AB of property) Ordinary + separately stated income (incl. tax-exempt) Liability share increase Cash / money distributions Property distributed (partnership AB) Liability share decrease Nondeductible, noncapital expenses Losses & deductions (distributive share)

Running basis (correct order)

Big picture first — then the step rail and path chart.

Ending basis

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§731 gain

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Money over basis

Allowed / suspended loss

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Outside basis path · each step

Allowed loss

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Suspended loss

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Exam trap: Applying losses before distributions understates gain and overstates current loss. Debt share ↓ is treated as a money distribution. Basis never goes below zero — excess cash is gain; excess loss is suspended.

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Study tool only — not official IRS software. Figures labeled 2025 track law/forms through Dec 31, 2025. Confirm against current IRS pubs before the exam.