When a partner receives a distribution, how does it affect their basis in the partnership?

When a partner receives a distribution from a partnership, their basis in the partnership is decreased by the amount of the distribution. This is because the basis represents the partner's investment in the partnership, which is adjusted for various transactions, including distributions.

When a distribution is made, it reduces the amount the partner has invested in the partnership, reflecting that they have received cash or property from the partnership. This decrease is also important for tax purposes, as it ensures that the partner's gain or loss on a future sale of their partnership interest is accurately calculated.

Understanding this mechanism is crucial for proper tax reporting and accurately managing one’s investment in the partnership. It is also essential to note that distributions may have different tax implications depending on the nature of the distribution and the partner’s overall basis in the partnership.