In both the tax loss or tax gain it includes any

 In both the tax loss or tax gain, it includes any remedial allocations under
§1.704-3(d).
 §704(c) issues:
 If a Partner contributes property that is appreciated or depreciated in value, then the
built-in gain or loss is allocated to the transferee or buying Partner as it would have
been allocated to the transferor or selling Partner.
 This is incorporated in the calculation of the transferee Partner’s share of the AB to the
P/S of its property.
Allocation of the Adjustment under §755 :
 Once the §743(b) adjustment has been determined, that amount must be allocated among
the P/S assets according to §755.
 §1.755-1(a)(1) – First , determine the value of P/S property under (a)(2) – (a)(5)
 §1.755-1(a)(1) – Second , allocate the total §743 basis adjustment between the 2 classes
of property
 1 st Class = capital assets and §1231(b) property ( capital gain property )
 2 nd Class = any other property ( ordinary income property )
 §1.755-1(a)(1) – Third , the §743(b) basis adjustment allocated to each class is then
allocated within that class.
 Allocations :
 §1.755-1(b)(2) – Allocations between Classes – The class of ordinary income allocation
is Based on the allocations of income, gain or loss that the transferee Partner would
receive from the sale of all ordinary income property if
 Immediately after the transfer the P/S’s assets were disposed of in a fully taxable
transaction for FMV ( hypothetical transaction under §1.755-1(b)(1)(ii)).
 An increase can be made to one class or one property w/i the class while a decrease is
made to the other class or one property w/i the class.
 §1.755-1(b)(2) - Basis is allocated to OI class first, then to capital gain property class .
 (i)(B) - If there is a decrease in capital gain property, it cannot produce a negative basis in
any asset.

(1) - The §743(b) adjustments are personal to the buying Partner. It does NOT result in an
adjustment to the common basis of the P/S property and it has NO effect on the P/S’s
computation of §703 items.
 (2) - The P/S first computes all P/S items at the P/S level under §703.
 Then each Partner , (including the transferee or buyer Partner) is allocated those items
under §704 (Partner’s distributive share) and adjusts the Partner’s capital accounts
accordingly;
 The P/S then adjusts the transferee or buyer Partner’s distributive share of P/S income,