Explanation of handling of sale of partnership & info
Sale of a partnership interest
A partner’s adjusted basis in a partnership (outside basis) refers to a partner’s investment in a partnership. Outside basis is determined without considering any amount shown in the partnership boos as capital, equity or similar account. When a partner disposes of an interest in a partnership, the difference between the sale price and the partner’s outside basis is the taxable gain or loss. Each partner is responsible for keeping track of his or her outside basis.
Additions to basis:
Partner’s adjusted basis of property contributed to the partnership
Taxable gains the partner recognizes on the contribution of property
Liabilities the partner assumes and increases in partnership liabilities.
Taxable income of partnership including capital gains
Tax exempt income of partnership
Depletion deductions in excess of basis
Subtractions from basis:
Liabilities of the partner that the partnership assumes.
Decreases in partnership liabilities.
Partnership losses including capital losses
Nondeductible partnership expenses that are not capital expenditures.
Distributive share of Section 179 expense even if partner is not allowed the full deduction in one year due to the limitation
Adjusted basis of partnership property distributed to the partner
Depletion deductions for oil and gas wells.
The taxable gain recognized is considered a sale of a capital asset. The sale or exchange of a partner’s interest in a partnership usually results in capital gain or loss. However, Payments for Unrealized Receivables and Inventory Items, would be considered ordinary income and would require more detail in explanation.
Gain or loss is the difference between the amount realized and the adjusted basis of the partner’s interest in the partnership. If the selling partner is relieved of any partnership liabilities, that partner must include the liability relief as part of the amount realized for his or her interest.