# § 734. Adjustment to basis of undistributed partnership property where section 754 election or substantial basis reduction
**(a)** **General rule** The basis of partnership property shall not be adjusted as the result of a distribution of property to a partner unless the election, provided in section 754 (relating to optional adjustment to basis of partnership property), is in effect with respect to such partnership or unless there is a substantial basis reduction with respect to such distribution.
**(b)** **Method of adjustment** In the case of a distribution of property to a partner by a partnership with respect to which the election provided in section 754 is in effect or with respect to which there is a substantial basis reduction, the partnership shall—
Paragraph (1)(B) shall not apply to any distributed property which is an interest in another partnership with respect to which the election provided in section 754 is not in effect.
**(1)** increase the adjusted basis of partnership property by—
**(A)** the amount of any gain recognized to the distributee partner with respect to such distribution under section 731(a)(1), and
**(B)** in the case of distributed property to which section 732(a)(2) or (b) applies, the excess of the adjusted basis of the distributed property to the partnership immediately before the distribution (as adjusted by section 732(d)) over the basis of the distributed property to the distributee, as determined under section 732, or
**(2)** decrease the adjusted basis of partnership property by—
**(A)** the amount of any loss recognized to the distributee partner with respect to such distribution under section 731(a)(2), and
**(B)** in the case of distributed property to which section 732(b) applies, the excess of the basis of the distributed property to the distributee, as determined under section 732, over the adjusted basis of the distributed property to the partnership immediately before such distribution (as adjusted by section 732(d)).
**(c)** **Allocation of basis** The allocation of basis among partnership properties where subsection (b) is applicable shall be made in accordance with the rules provided in section 755.
**(d)** **Substantial basis reduction**
**(1)** **In general** For purposes of this section, there is a substantial basis reduction with respect to a distribution if the sum of the amounts described in subparagraphs (A) and (B) of subsection (b)(2) exceeds $250,000.
**(2)** **Regulations** For regulations to carry out this subsection, see section 743(d)(2).
**(e)** **Exception for securitization partnerships** For purposes of this section, a securitization partnership (as defined in section 743(f)) shall not be treated as having a substantial basis reduction with respect to any distribution of property to a partner.
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**Source Credit**: (Aug. 16, 1954, ch. 736, 68A Stat. 247; Pub. L. 98–369, div. A, title I, § 78(a), July 18, 1984, 98 Stat. 597; Pub. L. 108–357, title VIII, § 833(c)(1)–(5)(A), Oct. 22, 2004, 118 Stat. 1591, 1592; Pub. L. 109–135, title IV, § 403(bb), Dec. 21, 2005, 119 Stat. 2630.)
## Editorial Notes
### Amendments
2005—Subsec. (a). , inserted “with respect to such distribution” before period at end.
Subsec. (b). , reenacted heading without change and amended introductory provisions generally. Prior to amendment, introductory provisions read as follows: “In the case of a distribution of property to a partner, a partnership, with respect to which the election provided in section 754 is in effect or unless there is a substantial basis reduction, shall—”.
2004—, substituted “Adjustment to basis of undistributed partnership property where section 754 election or substantial basis reduction” for “Optional adjustment to basis of undistributed partnership property” in section catchline.
Subsec. (a). , inserted “or unless there is a substantial basis reduction” before period at end.
Subsec. (b). , inserted “or unless there is a substantial basis reduction” after “section 754 is in effect” in introductory provisions.
Subsec. (d). , added subsec. (d).
Subsec. (e). , added subsec. (e).
1984—Subsec. (b). inserted at end “Paragraph (1)(B) shall not apply to any distributed property which is an interest in another partnership with respect to which the election provided in section 754 is not in effect.”
## Statutory Notes and Related Subsidiaries
### Effective Date of 2005 Amendment
Amendment by effective as if included in the provision of the American Jobs Creation Act of 2004, , to which such amendment relates, see , set out as a note under .
### Effective Date of 2004 Amendment
> “The amendments made by subsection (c) [amending this section] shall apply to distributions after the date of the enactment of this Act [
>
> ].”
, , , provided that:
### Effective Date of 1984 Amendment
> “The amendment made by subsection (a) [amending this section] shall apply to distributions after
>
> , in taxable years ending after such date.”
, , , provided that: