Form 7217: partner basis in distributed property

“Form 7217 is filed by any partner receiving a distribution of property from a partnership in a non-liquidating or liquidating distribution to report the basis of the distributed property, including any basis adjustment to such property as required by section 732(a)(2) or (b).” IRS, About Form 7217

Who has to file Form 7217?

A partner files Form 7217 with their annual tax return for each date during the year on which they received property subject to section 732, according to the Instructions for Form 7217 (Rev. December 2024). Property received on different days needs separate forms, even in one transaction. The form is due with the partner's return, including extensions. The Partner's Instructions for Schedule K-1 (Form 1065) say the requirement began in tax year 2024, and the December 2024 revision applies to tax years beginning in 2024 or later until a new revision is issued.

Three situations need no Form 7217: a distribution of only money or marketable securities treated as money under section 731(c), payments for services outside the partner's capacity as a partner under section 707(a)(1), and transfers treated as disguised sales under section 707(a)(2)(B). The partnership does not file the form. It supplies the inputs on Schedule K-1 box 19 and an attached statement, and the partner supplies outside basis, which the K-1 does not report.

Where does each K-1 box 19 code go on Form 7217?

Form 7217 takes its inputs from Schedule K-1 (Form 1065) box 19, which for 2025 and later splits distributions into codes A through G. An IRS update to the Instructions for Form 7217, posted April 23, 2026, maps the new codes to lines 3, 5a and 5b, and says the changes will appear in the December 2026 revision. Outside basis on line 4 comes from the partner's own records. For marketable securities, the update directs the partner to the statement attached to codes A and F, and it says not to include those securities in the money on line 5a.

Box 19 codes are explained on the K-1 box 19 page, and the outside basis on line 4 comes from the partner basis worksheet.

How does Form 7217 work out basis in distributed property?

Form 7217 Part I applies the section 732 rules in a fixed sequence. Line 3 is the partnership's aggregate basis in the distributed property, line 4 is outside basis immediately before the distribution, and lines 5a to 5c total the cash and marketable securities. Line 7 is gain when money exceeds outside basis. Line 9 is outside basis reduced by cash, not below zero. Line 10 is the basis to allocate: the smaller of line 3 or line 9 for a non-liquidating distribution, and line 9 for a liquidating one.

Part II spreads line 10 across the properties under section 732(c). Unrealized receivables and inventory take the partnership's basis first. A decrease goes first to properties with unrealized depreciation, then in proportion to adjusted bases. An increase, which only arises in a liquidation, goes first to properties with unrealized appreciation, then in proportion to fair market value. Column (b) must total line 3, and column (e) must total line 10.

What does a Form 7217 calculation look like?

For example, Lee has an outside basis of $50,000 and receives a non-liquidating distribution of $20,000 cash, equipment with a partnership basis of $25,000 and a value of $30,000, and land with a partnership basis of $15,000 and a value of $40,000. Neither asset is an unrealized receivable or inventory item, and neither has unrealized depreciation, so section 732(c)(3)(B) allocates the decrease in proportion to adjusted basis. The partnership's basis in the two assets, $40,000, is more than Lee's $30,000 of basis left after the cash, so section 732(a)(2) applies.

Lee's outside basis drops to zero. The $10,000 of basis that disappeared is what a partnership with a section 754 election would add to its remaining property under section 734(b); see the section 754 election page.

What do reviewers check on Form 7217?

A reviewer checking Form 7217 confirms six items, each tied to the form, its instructions or the K-1 partner instructions. The first document to pull is the box 19 statement from the partnership, because it lists the partnership's basis and fair market value for each property distributed and is the source for Part II, columns (b) and (d).

The second document is the partner's own basis record for the interest, rolled forward to the moment before the distribution. The Partner's Instructions for Schedule K-1 note that some distributions require basis to be determined at the time of the distribution rather than in the worksheet's year-end order. The reviewer also confirms how many distribution dates there were, since each date needs its own form.