Which basis represents each partner's basis in the partnership interest?

The concept of outside basis pertains specifically to a partner's investment in a partnership. Each partner's basis in their partnership interest is crucial for determining gain or loss upon the sale of that interest, as well as for calculating their share of partnership income, deductions, and credits.

Outside basis accounts for the amount of money and property that a partner contributed to the partnership, adjusted for various factors such as additional contributions, withdrawals, the partner's share of the partnership's liabilities, and other adjustments over their time in the partnership. It reflects the economic investment a partner has in the partnership and is important for the overall tax implications of owning a partnership interest.

In contrast, the inside basis refers to the partnership's basis in its assets, which is not related to any individual partner's investment. Capital basis and aggregate basis are not standard terms used in partnership taxation to describe a partner's basis in their partnership interest.

Understanding outside basis is essential, as it serves as the foundation for various tax calculations regarding a partner's income tax liability and the treatment of distributions and sales of partnership interests. This knowledge is key for anyone studying corporate income tax and partnership taxation.