What Is “Built-in Loss”?
06/01/2026
A built-in loss is the drop in value an asset experiences before a major tax event or business transition, even though the asset hasn’t been sold yet. It represents the gap where an asset’s current market value is lower than its original cost for tax purposes. The IRS tracks these losses closely to prevent businesses
What Is “Built-in Gain”?
06/01/2026
A built-in gain is the hidden, unrealized profit attached to an asset that increased in value before a major transition, such as converting a corporation’s tax structure or transferring property. It represents the gap between what the asset is currently worth on the open market and what it originally cost for tax purposes. This gain
What Is a “Partnership contribution”?
06/01/2026
A partnership contribution is an asset—such as cash, services, or physical property—that an owner puts into a partnership or multi-member LLC in exchange for an ownership stake. This initial or ongoing investment establishes the partner’s equity in the company and forms the basis of their tax tracking. In most cases, making a partnership contribution is
What Is a “Liquidating distribution”?
06/01/2026
A liquidating distribution is a final payout of cash or property from a business to an owner that completely terminates the owner’s stake in the company. This happens either because the individual owner is permanently cashing out and leaving, or because the entire business is closing its doors and distributing its remaining assets. For tax
What Is a “Current distribution”?
06/01/2026
A current distribution (also known as a non-liquidating distribution) is a transfer of cash or property from a business to an owner who is keeping their ownership stake in the company. It represents an owner taking a portion of their equity or profits out of the business for personal use without closing their account or
What Is a “Partnership distribution”?
06/01/2026
A partnership distribution is a transfer of cash or physical property from a business to one of its partners or LLC members. It is simply the process of an owner taking their share of the business’s profits or capital out of the company bank account for personal use. In most cases, taking a distribution does
What Is a “Book capital account”?
06/01/2026
A book capital account is a financial record that tracks a partner’s or LLC member’s true economic equity in a business based on fair market value. Unlike a tax capital account, which relies on strict IRS rules and historical costs, a book capital account reflects what your share of the business is actually worth in
What Is a “Tax capital account”?
06/01/2026
A tax capital account is a financial record that tracks a partner’s or LLC member’s equity in a business using strict IRS tax accounting rules. It calculates your ownership stake based on taxable income, deductible losses, and the historical tax cost of assets, rather than their current market value. The IRS requires partnerships to use
What Is a “Capital account”?
06/01/2026
A capital account is a financial and tax record that tracks a partner’s or owner’s equity in a business, typically an LLC or a partnership. Think of it as a running tally of the money or property you have put into the business, plus your share of the profits, minus your share of any losses
What Is “Inside basis”?
06/01/2026
Inside basis is the tax value of the assets owned directly by a business, such as a partnership or an LLC. It represents the company’s official tax investment in its property, including equipment, real estate, and inventory. This number is used by the business to calculate depreciation deductions and to determine the taxable profit or