What is Sale of a partnership interest?
In short
Gain or loss on selling a partnership interest is generally capital, but the part attributable to the partnership's unrealized receivables and inventory (hot assets) is ordinary income.
Key takeaways
- The amount realized includes the selling partner's share of partnership liabilities taken over by the buyer.
- The partner's share of income is figured up to the date of sale and increases outside basis first.
- A section 754 election lets the buyer adjust its share of inside basis.
Where it's tested
REG: Partnership Taxation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A partner has an outside basis of $20,000, which includes a $12,000 share of partnership liabilities. The partnership repays all of its debt. What is the tax consequence to the partner?