Partnership: Partner Basis & K-1 Allocation
Quick answer
A partner's outside basis starts with contributions, rises for allocated income and the partner's share of partnership liabilities, and falls for distributions and allocated losses, never below zero. Losses beyond basis are suspended and carried forward. Schedule K-1 allocations follow the partnership agreement if they meet IRC §704(b), and §705 governs the basis adjustments.
Partner Basis & K-1 Allocation is tested on EA Exam Part 2 (Business Entities). Primary IRS reference: IRC §705.
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About this EA exam topic
Partner basis and K-1 allocation questions are heavily tested on Part 2. A partner’s outside basis increases for contributions, income, and the partner’s share of liabilities, and decreases for distributions and losses.
The EA exam tests the ordering of basis adjustments and how basis limits the deductibility of allocated losses. Share of partnership liabilities is a frequent trap because it changes basis.
What you'll be tested on
- Computing a partner’s outside basis and its annual adjustments
- Effect of partnership liabilities on basis
- Basis-limited loss deductions and carryforwards
- Reading allocations from a Schedule K-1
How to prepare
- Memorize the order of basis adjustments (contributions/income up, distributions/losses down).
- Never forget the partner’s share of liabilities in basis.
- Losses are limited to basis, then carried forward.
Practice questions for Partner Basis & K-1 Allocation
What this topic covers
Partner Basis & K-1 Allocation appears in Part 2: Business Taxation within the Business Entities domain. VantageEA practice questions focus on how partnership rules are applied in realistic EA exam fact patterns.
What candidates practice
Candidates practice identifying tested facts, choosing the best multiple-choice answer, and reviewing explanations tied to IRC §705, IRC §704(b), Schedule K-1. This topic supports timed 100-question PSI-style mock tests and shorter topic review sessions.
Related practice-question themes include partner-basis, k-1, allocation, outside-basis.
Topic overview
Official IRS sources
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Frequently asked questions
Why do liabilities affect partner basis?
A partner’s share of partnership liabilities is treated as a deemed contribution, increasing outside basis.
Which part?
Part 2 (Businesses).
Reference?
IRS Publication 541.
Continue studying
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S Corporation: S Corp Election & Termination
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S Corporation: S Corp Income/Loss & Distributions
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