ALLOCATION OF BASIS AMONG PROPERTIES DISTRIBUTED BY PARTNERSHIP.

SEC. 1061. ALLOCATION OF BASIS AMONG PROPERTIES DISTRIBUTED BY PARTNERSHIP. (a) In General.—Subsection (c) of section 732 is amended to read as follows: “(c) Allocation of Basis.— “(1) In general.—The basis of distributed properties to which subsection (a)(2) or (b) is applicable shall be allocated— “(A)(i) 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, and “(ii) if the basis to be allocated is less than the sum of the adjusted bases of such properties to the partnership, then, to the extent any decrease is required in order to have the adjusted bases of such properties equal the basis to be allocated, in the manner provided in paragraph (3), and111 STAT. 946 “(B) to the extent of any basis remaining after the allocation under subparagraph (A), to other distributed properties— “(i) first by assigning to each such other property such other property’s adjusted basis to the partnership, 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 equal such remaining basis, in the manner provided in paragraph (2) or (3), whichever is appropriate. “(2) Method of allocating increase.—Any increase required under paragraph (1)(B) shall be allocated among the properties— “(A) first to properties with unrealized appreciation in proportion to their respective amounts of unrealized appreciation before such increase (but only to the extent of each property’s unrealized appreciation), and “(B) then, to the extent such increase is not allocated under subparagraph (A), in proportion to their respective fair market values. “(3) Method of allocating decrease.—Any decrease required under paragraph (1)(A) or (1)(B) shall be allocated— “(A) first to properties with unrealized depreciation in proportion to their respective amounts of unrealized depreciation before such decrease (but only to the extent of each property’s unrealized depreciation), and “(B) then, to the extent such decrease is not allocated under subparagraph (A), in proportion to their respective adjusted bases (as adjusted under subparagraph (A)).”. (b) Effective Date.—The amendment made by subsection (a) shall apply to distributions after the date of the enactment of this Act.