say you sold for 4445 and bought for 4000 so you think your gain is only 445.
However, you already got 1000 in cash as a distribution that was not taxed at the time so now it reduces your tax basis and increases the gain by 1000. Other ways to look at it is as if you only paid 3000 and got 4445 in cash on sale or you got 5445 cash (sales price + the distribution) for what you only paid 4000. either way, can you see your gain is now 1445 - the excess of cash received over cash out of pocket *************************************
you also had losses of 207 during the period you held it. those losses were allowed at some point in time probably in the year of sale so you get an income tax deduction for that loss. that deduction further reduces the tax basis in the partnership. Another way to look at this is you got an ordinary loss of 207 offset by an additional capital gain of 207 - net is zero.
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so your revised total gain is
4445 - (4000-1207) = 4445 -2793 = 1652
now the tax laws say that this gain must be separated between the ordinary portion (751) and capital gain
751 is the ordinary gain so if it's 182 it reduces the capital gain' to 1470.
selling a partnership interest is taxed differently than selling a stock. for a publicly held stock, the gain/loss would normally be the sales price vs purchase price. not so with a partnership. you are considered as selling your proportionate interest of each partnership asset at FMV which results in depreciation recapture (the 751 portion)
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in this example, you received 1445 more in cash than you were out of pocket. in addition, ordinary losses of 207 exceeded 751 ordinary income recapture of 182 by 25 so it's the 1445 + this 25 that equals your capital gain
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