One basis, multiple partnership interests.

For purposes of both Sec. 704(d) loss basis limitation rules and determining a taxpayer's basis in a partnership interest that is sold, Rev. Rul. 84-53 provides that a partner who holds both a limited and a general interest in the same partnership will be considered to have a unified basis in both interests.

Therefore, if a partner's unified basis exceeds the total partnership losses allocated to the partner for the year, under Sec. 704(d) the partner will be entitled to deduct the entire amount of the losses--even if the losses flow disproportionately from either the general or limited partnership interest.

Additionally, on the sale of a partnership interest, the partner is treated as having one aggregate adjusted basis in all the partner's partnership interests in that partnership, whether general or limited partnership interests. The partner is required to allocate the aggregate basis to the interest sold in calculating the gain or loss on the sale of an interest in the partnership.

Example: T, a single taxpayer, owns a 25% general partnership (GP) interest in ABC partnership and a 10% limited partnership (LP) interest in ABC for 1993. T's separate basis in the GP interest at 1/1/93 is $10,000 and in the LP interest is $2,000.

Assume the partnership has no liabilities. On T's Schedule K-is for 1993, the GP K-1 reports an ordinary loss of $6,000 and distributions of $1,000. The LP K-1 reports an ordinary loss of $3,000 and no distributions. Although 7s separate basis in the LP interest is not sufficient to allow a deduction of the full LP loss, the aggregate basis of $1 1,000 ($12,000 - $1,000 distribution) is sufficient to allow full deduction of the total losses of $9,000.

Furthermore, assume on 1/1/94, when T's GP interest is worth $20,000 and his LP interest is worth $10,000, T sells a 5% GP interest to an unrelated third party for $4,500.

T would recognize a $4,200 ($4,500 - $300) gain on the sale of the interest. The basis is determined as follows: The 1/1/94 aggregate basis of $2,000 ($12,000 original basis - 1993 distributions of $1,000 and 1993 total losses of $9,000) is allocated 15% to the interest sold, based on the fair market value (FMV) of the interest sold to the total FMV of all interests held [$4,500 / $20,000 + 10,000)]. Finally, T's remaining aggregate basis in T's 20% GP interest and 10% LP interest would be $1,700 ($2,000 - $300).