Treasury Regulations · 26 CFR
§ 1.734-1. Optional adjustment to basis of undistributed partnership property.
Regulation text, no changes From the eCFR, current as of October 15, 2026. The eCFR is an authoritative but unofficial editorial compilation of the Code of Federal Regulations; the official text is the annual CFR on govinfo. Compare it with this section on ecfr.gov (external site) or the official annual CFR on govinfo (external site).
Regulation under 26 U.S.C. § 734
Cite as 26 CFR § 1.734-1
At a glance
Read from the text and its source citation. Not part of the regulation.
- Status
- In the current eCFR
- Issued
- November 26, 1960 by T.D. 6500
- Last amended
- July 16, 2004 by T.D. 9137
- Issued under
- 26 U.S.C. § 734
- Length
- 1,167 words · about 5 min to read
- Cross-references
- cites 7 Code sections and 3 regulations; cited by 2
See § 1.460-4(k)(2)(iv)(D) for a rule determining the partnership's basis in a long-term contract accounted for under a long-term contract method of accounting. The provisions of this paragraph (b)(1) are illustrated by the following examples:
Partner A has a basis of $10,000 for his one-third interest in partnership ABC. The partnership has no liabilities and has assets consisting of cash of $11,000 and property with a partnership basis of $19,000 and a value of $22,000. A receives $11,000 in cash in liquidation of his entire interest in the partnership. He has a gain of $1,000 under section 731(a)(1). If the election under section 754 is in effect, the partnership basis for the property becomes $20,000 ($19,000 plus $1,000).
Partner D has a basis of $10,000 for his one-third interest in partnership DEF. The partnership balance sheet before the distribution shows the following:
| Adjusted basis | Value | |
|---|---|---|
| Cash | $4,000 | $4,000 |
| Property X | 11,000 | 11,000 |
| Property Y | 15,000 | 18,000 |
| Total | 30,000 | 33,000 |
| Adjusted basis | Value | |
|---|---|---|
| Liabilities | $0 | $0 |
| Capital: | ||
| D | 10,000 | 11,000 |
| E | 10,000 | 11,000 |
| F | 10,000 | 11,000 |
| Total | 30,000 | 33,000 |
In liquidation of his entire interest in the partnership, D received property X with a partnership basis of $11,000. D's basis for property X is $10,000 under section 732(b). Where the election under section 754 is in effect, the excess of $1,000 (the partnership basis before the distribution less D's basis for property X after distribution) is added to the basis of property Y. The basis of property Y becomes $16,000 ($15,000 plus $1,000). If the distribution is made to a transferee partner who elects under section 732(d), see § 1.734-2.
The provisions of this subparagraph may be illustrated by the following examples:
Partner G has a basis of $11,000 for his one-third interest in partnership GHI. Partnership assets consist of cash of $10,000 and property with a basis of $23,000 and a value of $20,000. There are no partnership liabilities. In liquidation of his entire interest in the partnership, G receives $10,000 in cash. He has a loss of $1,000 under section 731(a)(2). If the election under section 754 is in effect, the partnership basis for the property becomes $22,000 ($23,000 less $1,000).
Partner J has a basis of $11,000 for his one-third interest in partnership JKL. The partnership balance sheet before the distribution shows the following:
| Adjusted basis | Value | |
|---|---|---|
| Cash | $5,000 | $5,000 |
| Property X | 10,000 | 10,000 |
| Property Y | 18,000 | 15,000 |
| Total | 33,000 | 30,000 |
| Adjusted basis | Value | |
|---|---|---|
| Liabilities | $0 | $0 |
| Capital: | ||
| J | 11,000 | 10,000 |
| K | 11,000 | 10,000 |
| L | 11,000 | 10,000 |
| Total | 33,000 | 30,000 |
In liquidation of his entire interest in the partnership, J receives property X with a partnership basis of $10,000. J's basis for property X under section 732(b) is $11,000. Where the election under section 754 is in effect, the excess of $1,000 ($11,000 basis of property X to J, the distributee, less its $10,000 adjusted basis to the partnership immediately before the distribution) decreases the basis of property Y in the partnership. Thus, the basis of property Y becomes $17,000 ($18,000 less $1,000). If the distribution is made to a transferee partner who elects under section 732(d), see § 1.734-2.
[T.D. 6500, 25 FR 11814, Nov. 26, 1960; 25 FR 14021, Dec. 31, 1960, as amended by T.D. 8847, 64 FR 69908, Dec. 15, 1999; T.D. 9137, 69 FR 42559, July 16, 2004]
Cross-references
Computed from the citations in the text of 26 CFR.
Code sections it cites
- § 754 Manner of electing optional adjustment to basis of partnership property
- § 731 Extent of recognition of gain or loss on distribution
- § 743 Special rules where section 754 election or substantial built-in loss
- § 732 Basis of distributed property other than money
- § 734 Adjustment to basis of undistributed partnership property where section 754 election or substantial basis reduction
- § 755 Rules for allocation of basis
- § 168 Accelerated cost recovery system
Regulations it cites
- § 1.460-4 Methods of accounting for long-term contracts.
- § 1.734-2 Adjustment after distribution to transferee partner.
- § 1.755-1 Rules for allocation of basis.
Cited by 2 other regulations
Amendment history
From the source citation at the end of the section, newest first. T.D. is a Treasury decision; FR is the Federal Register.
- Amended by T.D. 9137 (69 FR 42559)
- Amended by T.D. 8847 (64 FR 69908)
- Amended (25 FR 14021)
- Issued by T.D. 6500 (25 FR 11814)
Where it sits in 26 CFR
- Subchapter A Income tax
- Part 1 Income taxes
- Distributions by a partnership
Nearby sections
- § 1.732-1 Basis of distributed property other than money.
- § 1.732-2 Special partnership basis of distributed property.
- § 1.732-3 Corresponding adjustment to basis of assets of a distributed corporation controlled by a corporate partner.
- § 1.733-1 Basis of distributee partner's interest.
- § 1.734-1 Optional adjustment to basis of undistributed partnership property.
- § 1.734-2 Adjustment after distribution to transferee partner.
- § 1.735-1 Character of gain or loss on disposition of distributed property.
- § 1.736-1 Payments to a retiring partner or a deceased partner's successor in interest.
- § 1.737-1 Recognition of precontribution gain.