I need to record receipt of the stock with carryover tax basis and carryover holding period. However, I also need to reduce the basis of the partnership investment for the FMV of the stock on the date of distribution. How do you record it so that the cost and tax basis of the partnership investment are properly reduced.

To record the distribution of a stock from a partnership if you are distributing different stock shares than the partnership itself (i.e. if ABC Partnership is distributing shares of XYZ Stock):

1. Sell "0" shares of the partnership for the cost basis amount of the stock distribution as a return of capital (when you sell "0" shares, the system will ask you if it is a Return of Capital. Select Yes). You must make sure you do this transaction in any of your investment journals. Do not do this as a general journal.

2. Buy the correct number of shares of the new distributed stock for the same cost basis amount (and the carry over date) you took from the Partnership as a Return of Capital. This will zero out the balance in your investment journal so there is no $$$ consequence in the journal you use. This also puts your distributed stock in your asset list with the correct cost basis and date.

Then do a general journal to record the FMV reduction of the partnership:

1. Credit your partnership asset and debit unrealized gains and losses with the correct FMV (less the cost you already reduced the partnership by when you sold the "0" shares as a return of capital).

2. Debit your new stock position and credit unrealized gains and losses with the same amount as above to record the correct FMV for your new distributed stock position.

This should make your books show the correct new cost and FMV of your Partnership and new distributed Stock position.

I followed the steps listed. However, when I do the journal to record the FMV reduction in the partnership my cost/tax basis in the partnership does not adjust. I am going to try and combine these with steps 1 & 2 of recording the the distribution and see if that works instead.

Go in to A/L screen and manually adjust the cost/tax basis. In a general journal, since you are not "buying/selling" the asset, the cost/tax basis is not adjusted automatically by the system. It has to be done manually.