What is Hot assets (Section 751)?
In short
Hot assets are a partnership's unrealized receivables and inventory items. When a partner sells a partnership interest, the part of the gain attributable to them is ordinary income rather than capital gain.
Key takeaways
- Unrealized receivables include depreciation recapture that would arise if the assets were sold.
- This stops partners turning ordinary income into capital gain by selling their interests.
- Distributions that change partners' shares of hot assets can also trigger ordinary income.
Where it's tested
TCP: Partnership Compliance & Planning — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Hot assets under Section 751 are significant because, on the sale of a partnership interest, they: