---
kind: "section"
citation: "26 U.S.C. § 732"
title: "26"
title_heading: "Internal Revenue Code"
number: "732"
heading: "Basis of distributed property other than money"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/732"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter K — Partners and Partnerships"
  - "Part II — Contributions, Distributions, and Transfers"
  - "Subpart B — Distributions by a Partnership"
---

# §732. Basis of distributed property other than money

- (a) **Distributions other than in liquidation of a partner’s interest—**
  - (1) **General rule—** The basis of [property](/usc/26/317.md?p=a) (other than money) distributed by a [partnership](/usc/26/761.md?p=a) to a [partner](/usc/26/761.md?p=b) other than in liquidation of the [partner](/usc/26/761.md?p=b)’s [interest](/usc/26/856.md?p=f-1) shall, except as provided in [paragraph (2)](#a-2), be its adjusted basis to the [partnership](/usc/26/761.md?p=a) immediately before such distribution.
  - (2) **Limitation—** The basis to the distributee [partner](/usc/26/761.md?p=b) of [property](/usc/26/317.md?p=a) to which [paragraph (1)](#a-1) is applicable shall not exceed the adjusted basis of such [partner](/usc/26/761.md?p=b)’s [interest](/usc/26/856.md?p=f-1) in the [partnership](/usc/26/761.md?p=a) reduced by any money distributed in the same transaction.
- (b) **Distributions in liquidation—** The basis of [property](/usc/26/317.md?p=a) (other than money) distributed by a [partnership](/usc/26/761.md?p=a) to a [partner](/usc/26/761.md?p=b) in liquidation of the [partner](/usc/26/761.md?p=b)’s [interest](/usc/26/856.md?p=f-1) shall be an amount equal to the adjusted basis of such [partner](/usc/26/761.md?p=b)’s [interest](/usc/26/856.md?p=f-1) in the [partnership](/usc/26/761.md?p=a) reduced by any money distributed in the same transaction.
- (c) **Allocation of basis—**
  - (1) **In general—** The basis of distributed [properties](/usc/26/317.md?p=a) to which subsection [(a)(2)](#a-2) or [(b)](#b) is applicable shall be allocated—
    - (A)
      - (i) first to any unrealized receivables (as defined in [section 751(c)](/usc/26/751.md?p=c)) and inventory items (as defined in [section 751(d)](/usc/26/751.md?p=d)) in an amount equal to the adjusted basis of each such [property](/usc/26/317.md?p=a) to the [partnership](/usc/26/761.md?p=a), and
      - (ii) if the basis to be allocated is less than the sum of the adjusted bases of such [properties](/usc/26/317.md?p=a) to the [partnership](/usc/26/761.md?p=a), then, to the extent any decrease is required in order to have the adjusted bases of such [properties](/usc/26/317.md?p=a) equal the basis to be allocated, in the manner provided in [paragraph (3)](#c-3), and
    - (B) to the extent of any basis remaining after the allocation under [subparagraph (A)](#c-1-A), to other distributed [properties](/usc/26/317.md?p=a)—
      - (i) first by assigning to each such other [property](/usc/26/317.md?p=a) such other [property](/usc/26/317.md?p=a)’s adjusted basis to the [partnership](/usc/26/761.md?p=a), and
      - (ii) then, to the extent any increase or decrease in basis is required in order to have the adjusted bases of such other distributed [properties](/usc/26/317.md?p=a) equal such remaining basis, in the manner provided in paragraph [(2)](#c-2) or [(3)](#c-3), whichever is appropriate.
  - (2) **Method of allocating increase—** Any increase required under [paragraph (1)(B)](#c-1-B) shall be allocated among the [properties](/usc/26/317.md?p=a)—
    - (A) first to [properties](/usc/26/317.md?p=a) with unrealized appreciation in proportion to their respective amounts of unrealized appreciation before such increase (but only to the extent of each [property](/usc/26/317.md?p=a)’s unrealized appreciation), and
    - (B) then, to the extent such increase is not allocated under [subparagraph (A)](#c-2-A), in proportion to their respective fair market [values](/usc/26/851.md?p=c-4).
  - (3) **Method of allocating decrease—** Any decrease required under paragraph [(1)(A)](#c-1-A) or [(1)(B)](#c-1-B) shall be allocated—
    - (A) first to [properties](/usc/26/317.md?p=a) with unrealized depreciation in proportion to their respective amounts of unrealized depreciation before such decrease (but only to the extent of each [property](/usc/26/317.md?p=a)’s unrealized depreciation), and
    - (B) then, to the extent such decrease is not allocated under [subparagraph (A)](#c-3-A), in proportion to their respective adjusted bases (as adjusted under [subparagraph (A)](#c-3-A)).
- (d) **Special partnership basis to transferee—** For purposes of subsections [(a)](#a), [(b)](#b), and [(c)](#c), a [partner](/usc/26/761.md?p=b) who acquired all or a part of his [interest](/usc/26/856.md?p=f-1) by a transfer with respect to which the election provided in [section 754](/usc/26/754.md) is not in effect, and to whom a [distribution of property](/usc/26/316.md?p=b-2-B) (other than money) is made with respect to the transferred [interest](/usc/26/856.md?p=f-1) within 2 years after such transfer, may elect, under regulations prescribed by the Secretary, to treat as the adjusted [partnership](/usc/26/761.md?p=a) basis of such [property](/usc/26/317.md?p=a) the adjusted basis such [property](/usc/26/317.md?p=a) would have if the adjustment provided in [section 743(b)](/usc/26/743.md?p=b) were in effect with respect to the [partnership](/usc/26/761.md?p=a) [property](/usc/26/317.md?p=a). The Secretary may by regulations require the application of this subsection in the case of a distribution to a transferee [partner](/usc/26/761.md?p=b), whether or not made within 2 years after the transfer, if at the time of the transfer the fair market [value](/usc/26/851.md?p=c-4) of the [partnership](/usc/26/761.md?p=a) [property](/usc/26/317.md?p=a) (other than money) exceeded 110 percent of its adjusted basis to the [partnership](/usc/26/761.md?p=a).
- (e) **Exception—** This section shall not apply to the extent that a distribution is treated as a [sale or exchange](/usc/26/864.md?p=c-8-D) of [property](/usc/26/317.md?p=a) under [section 751(b)](/usc/26/751.md?p=b) (relating to unrealized receivables and inventory items).
- (f) **Corresponding adjustment to basis of assets of a distributed corporation controlled by a corporate partner—**
  - (1) **In general—** If—
    - (A) a corporation (hereafter in this subsection referred to as the “corporate [partner](/usc/26/761.md?p=b)”) receives a distribution from a [partnership](/usc/26/761.md?p=a) of [stock](/usc/26/1504.md?p=a-4) in another corporation (hereafter in this subsection referred to as the “distributed corporation”),
    - (B) the corporate [partner](/usc/26/761.md?p=b) has [control](/usc/26/368.md?p=a-2-H-i) of the distributed corporation immediately after the distribution or at any time thereafter, and
    - (C) the [partnership](/usc/26/761.md?p=a)’s adjusted basis in such [stock](/usc/26/1504.md?p=a-4) immediately before the distribution exceeded the corporate [partner](/usc/26/761.md?p=b)’s adjusted basis in such [stock](/usc/26/1504.md?p=a-4) immediately after the distribution,

    then an amount equal to such excess shall be applied to reduce (in accordance with [subsection (c)](#c)) the basis of [property](/usc/26/317.md?p=a) held by the distributed corporation at such time (or, if the corporate [partner](/usc/26/761.md?p=b) does not [control](/usc/26/368.md?p=a-2-H-i) the distributed corporation at such time, at the time the corporate [partner](/usc/26/761.md?p=b) first has such [control](/usc/26/368.md?p=a-2-H-i)).

  - (2) **Exception for certain distributions before control acquired—** [Paragraph (1)](#f-1) shall not apply to any distribution of [stock](/usc/26/1504.md?p=a-4) in the distributed corporation if—
    - (A) the corporate [partner](/usc/26/761.md?p=b) does not have [control](/usc/26/368.md?p=a-2-H-i) of such corporation immediately after such distribution, and
    - (B) the corporate [partner](/usc/26/761.md?p=b) establishes to the satisfaction of the Secretary that such distribution was not part of a plan or arrangement to acquire [control](/usc/26/368.md?p=a-2-H-i) of the distributed corporation.
  - (3) **Limitations on basis reduction—**
    - (A) **In general—** The amount of the reduction under [paragraph (1)](#f-1) shall not exceed the amount by which the sum of the aggregate adjusted bases of the [property](/usc/26/317.md?p=a) and the amount of money of the distributed corporation exceeds the corporate [partner](/usc/26/761.md?p=b)’s adjusted basis in the [stock](/usc/26/1504.md?p=a-4) of the distributed corporation.
    - (B) **Reduction not to exceed adjusted basis of property—** No reduction under [paragraph (1)](#f-1) in the basis of any [property](/usc/26/317.md?p=a) shall exceed the adjusted basis of such [property](/usc/26/317.md?p=a) (determined without regard to such reduction).
  - (4) **Gain recognition where reduction limited—** If the amount of any reduction under [paragraph (1)](#f-1) (determined after the application of [paragraph (3)(A)](#f-3-A)) exceeds the aggregate adjusted bases of the [property](/usc/26/317.md?p=a) of the distributed corporation—
    - (A) such excess shall be recognized by the corporate [partner](/usc/26/761.md?p=b) as long-term capital gain, and
    - (B) the corporate [partner](/usc/26/761.md?p=b)’s adjusted basis in the [stock](/usc/26/1504.md?p=a-4) of the distributed corporation shall be increased by such excess.
  - (5) **Control—** For purposes of this subsection, the term “[control](/usc/26/368.md?p=a-2-H-i)” means ownership of [stock](/usc/26/1504.md?p=a-4) meeting the requirements of [section 1504(a)(2)](/usc/26/1504.md?p=a-2).
  - (6) **Indirect distributions—** For purposes of [paragraph (1)](#f-1), if a corporation acquires (other than in a distribution from a [partnership](/usc/26/761.md?p=a)) [stock](/usc/26/1504.md?p=a-4) the basis of which is determined (by reason of being distributed from a [partnership](/usc/26/761.md?p=a)) in whole or in part by reference to subsection [(a)(2)](#a-2) or [(b)](#b), the corporation shall be treated as receiving a distribution of such [stock](/usc/26/1504.md?p=a-4) from a [partnership](/usc/26/761.md?p=a).
  - (7) **Special rule for stock in controlled corporation—** If the [property](/usc/26/317.md?p=a) held by a distributed corporation is [stock](/usc/26/1504.md?p=a-4) in a corporation which the distributed corporation [controls](/usc/26/851.md?p=c-2), this subsection shall be applied to reduce the basis of the [property](/usc/26/317.md?p=a) of such controlled corporation. This subsection shall be reapplied to any [property](/usc/26/317.md?p=a) of any controlled corporation which is [stock](/usc/26/1504.md?p=a-4) in a corporation which it [controls](/usc/26/851.md?p=c-2).
  - (8) **Regulations—** The Secretary shall prescribe such regulations as may be necessary to carry out the purposes of this subsection, including regulations to avoid double counting and to prevent the abuse of such purposes.

## Source credit

(Aug. 16, 1954, ch. 736, 68A Stat. 246; Pub. L. 94–455, title XIX, § 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1834; Pub. L. 105–34, title X, §§ 1061(a), 1062(b)(3), Aug. 5, 1997, 111 Stat. 945, 947; Pub. L. 106–170, title V, § 538(a), Dec. 17, 1999, 113 Stat. 1939.)

## Notes

### Editorial Notes

### Amendments

1999—Subsec. (f). Pub. L. 106–170 added subsec. (f).

1997—Subsec. (c). Pub. L. 105–34, § 1061(a), amended heading and text of subsec. (c) generally. Prior to amendment, text read as follows: “The basis of distributed properties to which subsection (a)(2) or subsection (b) is applicable shall be allocated—

“(1) first to any unrealized receivables (as defined in section 751(c)) and inventory items (as defined in section 751(d)(2)) in an amount equal to the adjusted basis of each such property to the partnership (or if the basis to be allocated is less than the sum of the adjusted bases of such properties to the partnership, in proportion to such bases), and

“(2) to the extent of any remaining basis, to any other distributed properties in proportion to their adjusted bases to the partnership.”

Subsec. (c)(1)(A)(i). Pub. L. 105–34, § 1062(b)(3), substituted “section 751(d)” for “section 751(d)(2)”.

1976—Subsec. (d). Pub. L. 94–455 struck out “or his delegate” after “Secretary”.

### Statutory Notes and Related Subsidiaries

### Effective Date of 1999 Amendment

Pub. L. 106–170, title V, § 538(b), Dec. 17, 1999, 113 Stat. 1940, provided that: In general.—Except as provided in paragraph (2), the amendment made by this section [amending this section] shall apply to distributions made after July 14, 1999. Partnerships in existence on July 14, 1999.—In the case of a corporation which is a partner in a partnership as of July 14, 1999, the amendment made by this section shall apply to any distribution made (or treated as made) to such partner from such partnership after June 30, 2001, except that this paragraph shall not apply to any distribution after the date of the enactment of this Act [Dec. 17, 1999] unless the partner makes an election to have this paragraph apply to such distribution on the partner’s return of Federal income tax for the taxable year in which such distribution occurs.”

### Effective Date of 1997 Amendment

Pub. L. 105–34, title X, § 1061(b), Aug. 5, 1997, 111 Stat. 946, provided that: “The amendment made by subsection (a) [amending this section] shall apply to distributions after the date of the enactment of this Act [Aug. 5, 1997].”

Amendment by section 1062(b)(3) of Pub. L. 105–34 applicable to sales, exchanges, and distributions after Aug. 5, 1997, but not applicable to any sale or exchange pursuant to a written binding contract in effect on June 8, 1997, and at all times thereafter before such sale or exchange, see section 1062(c) of Pub. L. 105–34, set out as a note under section 724 of this title.