Partnership Taxes

Goddamn taxes.

I found a definition online that helped decode the difference between adjusted basis, basis in assets, and capital accounts:

—Partner’s Adjusted Basis (Outside Basis): This is the partner’s investment in the partnership. Outside basis is determined without considering any amount shown in the partnership books as capital, equity, or similar account. When a partner disposes of an interest in a partnership, the difference between the sale price and the partner’s adjusted basis is the taxable gain or loss. Each partner is responsible for keeping track of his/her adjusted basis.

—Partnership’s Basis in Assets (Inside Basis): This represents the tax basis in assets held by the partnership. The inside basis is used by the partnership in computing depreciation, gain or loss on sale of assets, etc. The partnership keeps track of the inside basis of assets.

—Capital Accounts: This represents the partners’ share of partnership equity (partnership assets minus partnership liabilities). There is a separate capital account for each partner. The capital account generally represents the partner’s distributive share of the partnership’s net worth as shown on the balance sheet. The partnership keeps track of each partner’s capital account, and presents an analysis of the capital account on Schedule K-1. The capital account is different than the partner’s adjusted basis. The capital account does not include a partner’s share of partnership liabilities.