Section 741 provides the general rule that capital gain or loss is recognized on the sale of a partnership interest. A selling partner’s relief of liabilities is included in the amount realized [Sec. 752(d)]. Gain or loss recognized by the selling partner is the difference between the amount realized and the adjusted basis of the partner’s interest in the partnership [Reg. Sec. 1.741-1(a)]. Therefore, Fred’s capital gain is $5,000 ($25,000 amount realized – $20,000 adjusted basis).

A partnership terminates for tax purposes only if no part of any business, financial operation, or venture of the partnership continues to be carried on by its partners in a partnership.

Under Sec. 1015, the basis of property acquired by gift is the same as the adjusted basis of the donor plus gift tax paid by the donor on the property’s appreciation. Hart Jr.’s basis was therefore $60,000. Section 741 provides that the gain on the sale of a partnership interest is capital gain. Hart Jr.’s gain is long-term since Sec. 1223(2) provides that if property has the same basis as it did in the hands of the previous owner, the holding period of the present owner includes the holding period of the previous owner. Note that this problem assumes there is no change in basis between August 1 and December 17, which would be unlikely. Under this assumption, Hart Jr.’s gain is

Section 732(b) provides that the basis of property distributed by a partnership in a liquidating distribution to a partner is the adjusted basis of the partner’s interest in the partnership minus any money received in the same distribution. The basis of distributed property is allocated first to inventory items and unrealized receivables up to the amount of the partnership’s adjusted basis in these items, then to other property to the extent of each distributed property’s adjusted basis to the partnership. The remaining basis increase or decrease is allocated depending on whether the adjusted bases of the distributed properties exceed the partner’s remaining basis in the partnership interest or not. Since the partnership’s bases in the distributed properties exceed the partner’s remaining basis in the partnership, a decrease must be allocated among the properties with unrealized depreciation in proportion to their respective amounts of unrealized depreciation (to the extent of each property’s depreciation) and then in proportion to the properties’ respective adjusted bases (considering the adjustments already made). In this case, an $8,000 ($30,000 adjusted basis of Ted’s interest – $10,000 cash received – $12,000 allocated to inventory items) decrease is allocated based on the properties’ respective adjusted bases as follows:

Section 732(b) provides that the basis of property distributed by a partnership in a liquidating distribution to a partner is the adjusted basis of the partner’s interest in the partnership minus any money received in the same distribution. The basis of distributed property is allocated first to inventory items and unrealized receivables up to the amount of the partnership’s adjusted basis in these items, then to other property to the extent of each distributed property’s adjusted basis to the partnership. The remaining basis increase or decrease is allocated depending on whether the adjusted basis of the distributed properties exceed the partner’s remaining basis in the partnership interest or not.

Since the partnership’s basis in the distributed properties exceed the partner’s remaining basis in the partnership ($50,000 basis in properties and $30,000 basis in partnership), a decrease must be allocated among the properties in proportion to the respective amounts of unrealized depreciation inherent in each property (but only to the extent of any unrealized depreciation). John’s basis in property C will be $8,000. The $20,000 basis of property C is reduced by the decline in FMV of property C ($15,000) divided by the decline in FMV of both properties ($15,000 + $10,000) times the $20,000 ($50,000 – $30,000) required reduction in basis for a reduction of $12,000 for property C. The old $20,000 basis minus the $12,000 reduction equals the new $8,000 basis.

Section 741 provides the general rule that capital gain or loss is recognized on the sale of a partnership interest. A selling partner’s relief of liabilities is included in the amount realized [Sec. 752(d)]. Gain or loss recognized by the selling partner is the difference between the amount realized and the adjusted basis of the partner’s interest in the partnership [Reg. Sec. 1.741-1(a)]. Therefore, Scott’s capital gain is $5,000 ($25,000 amount realized – $20,000 adjusted basis).

In the event of a sale or exchange of a partner’s interest in a partnership, the partnership may elect under Sec. 754 to adjust the basis of the partnership’s assets by the amount of the difference between the transferee partner’s basis for the partnership interest and the proportionate share of the basis of all partnership property.

Once an interest in a partnership is acquired, the partner’s basis is adjusted to reflect various partnership activities. Basis is increased by any additional contributions, any increased share of partnership liabilities, and the distributive share of both taxable and nontaxable income. Basis is decreased by any distribution to the partner, any decrease in liabilities, and the distributive share of partnership losses. The partnership book value of a partner’s interest (capital account) has no effect on basis for sale or liquidation purposes.

Because there were no unrealized receivables or inventory, the sale of the interest in the partnership results in capital gain or loss (Sec. 741). The relief from partnership liabilities is treated as an amount realized on the sale [Sec. 752(d)]. Walter’s gain is

In a liquidating distribution, a partner’s basis for his or her partnership interest is reduced by the amount of money received [Sec. 732(b)]. Any remaining basis is then allocated to other property received. Vance’s partnership interest basis of $180,000 is reduced by the $100,000 cash distributed. Accordingly, Vance’s basis in the real estate distributed is the remaining $80,000.

Under Sec. 731(a)(2), a partner recognizes loss on a liquidation distribution if (s)he receives no assets other than cash, unrealized receivables, and inventory and if the basis of the assets received is less than his or her basis in the partnership. Therefore, Mr. C recognizes a loss of $15,000 ($50,000 – $35,000 basis in boat) on the liquidating distribution. Under Sec. 732, the basis of inventory distributed is the partnership’s adjusted basis in the property. Therefore, Mr. C has a $35,000 adjusted basis in the cruiser and a gain of $20,000 on the sale ($55,000 – $35,000). Since the cruiser was sold more than 5 years after the distribution, the gain is capital gain [Sec. 735(a)(2)].

Any loss recognized on property distributed by a partnership in liquidation is characterized as if from the sale of a capital asset.

Section 732(b) provides that the basis of property distributed by a partnership in a liquidating distribution to a partner is the adjusted basis of the partner’s interest in the partnership, less any money received in the same distribution. The distributee partner’s basis in his or her partnership interest is first allocated to unrealized receivables and inventory. If the distributee partner’s allocable basis exceeds the basis the partnership had in the distributed unrealized receivables and inventory, that remaining basis is allocated among any other assets to the extent of the partnership’s basis in the other distributed assets. To the extent allocable basis exceeds the partnership’s basis in the other distributed assets, it is allocated in relation to the unrealized appreciation in those assets. Finally, any remaining basis is allocated among those assets based on the relative fair market value of those assets.

Therefore, Bob must first allocate basis to the collating machine ($150) since the intangible asset has no basis. Next, the remaining basis is allocated among the two assets based on the unrealized appreciation in those assets. The intangible asset would be allocated a basis of $235 [($800 unrealized appreciation ÷ $850 total appreciation of both assets) × $250], and the collating machine would receive basis of $15 {[$50 unrealized appreciation ($200 – $150) ÷ $850 total appreciation of both assets] × $250}. The total bases allocated to the collating machine and the intangible asset are $165 and $235, respectively.

The sale or exchange of an interest in a going partnership is similar to the sale of stock in a corporation. The gain or loss on the sale of the partnership interest is a capital gain or loss, subject to long- or short-term treatment depending upon the length of time the selling partner owned the interest in the partnership. The rule also applies to the sale of a partial interest in a partnership. An exception to this rule applies when the partnership owns unrealized receivables or inventory. In this case, the selling partner must allocate a portion of the sales proceeds to the unrealized receivables and to the inventory and, to that extent, will realize ordinary income.

Section 732(a) provides that the basis of property distributed to a partner is the property’s adjusted basis to the partnership immediately before such distribution. This basis, however, cannot exceed the adjusted basis of the partner’s interest in the partnership less any money received in the same distribution [Sec. 732(a)(2)]. Eliot’s basis in the property distributed is

If a partner’s interest is liquidated solely through a distribution of partnership property other than money, no gain is recognized. If the partnership distributes property other than money, the partner’s basis in the partnership must be transferred to the distributed assets. When a liquidation occurs and the partner’s basis in the partnership exceeds the partnership’s basis in the distributed assets, the excess of the partner’s basis in the partnership must also be allocated among the distributed assets. Any basis increase required is allocated first to properties with unrealized appreciation in proportion to the respective amounts of unrealized appreciation inherent in each property (but only to the extent of each property’s unrealized appreciation). Any remaining increase is then allocated in proportion to the properties’ fair market values.

The apartment house is first assigned its basis of $10,000, and the office building is assigned $12,500. Another $50,000 ($72,500 partnership basis – $22,500 assigned to properties) must be allocated to the two properties. The apartment house is allocated $40,000 [($40,000 increase in FMV ÷ $40,000 total increase in FMV) × $40,000]. Accordingly, $10,000 still remains to be allocated. It is allocated based on the FMVs of the properties. The apartment house will be allocated $8,000 [$50,000 FMV ÷ ($50,000 FMV of the apartment + $12,500 FMV of the building) × $10,000 remaining increase], and the building will be allocated the remaining $2,000. Thus, the basis in the apartment house will be $58,000 ($10,000 + $40,000 + $8,000), and the basis in the office building will be $14,500 ($12,500 + $2,000).

The total gain Abby realizes is the amount received ($1,000) minus her outside basis ($775). This equals $225. Under Sec. 751, however, a partner is to recognize ordinary income on the sale or exchange of a partnership interest to the extent the consideration received is attributable to unrealized receivables and/or inventory items. The inventory increased in value by $300 ($1,500 fair market value – $1,200 basis), and Abby’s share of this is $150 ($300 increase in value × 50%). Thus, $150 is ordinary income, and the remaining gain of $75 ($225 total gain – $150 ordinary income) is treated as a capital gain.

For income tax purposes, a retiring partner or successor in interest of a deceased partner is treated as a partner until his or her interest in the partnership has been completely liquidated (Publication 541).

Section 732(b) provides that the basis of property distributed by a partnership in a liquidating distribution to a partner is the adjusted basis of the partner’s interest in the partnership minus any money received in the same distribution. The basis of distributed property is allocated first to inventory items and unrealized receivables up to the amount of the partnership’s adjusted basis in these items, then to other property to the extent of each distributed property’s adjusted basis to the partnership. The remaining basis increase or decrease is allocated depending on whether the adjusted bases of the distributed properties exceed the partner’s remaining basis in the partnership interest or not. Since the partnership’s bases in the distributed properties exceed the partner’s remaining basis in the partnership, a decrease must be allocated among the properties with unrealized depreciation in proportion to their respective amounts of unrealized depreciation (to the extent of cash property’s depreciation) and then in proportion to the properties’ respective adjusted bases (considering the adjustments already made). Jeff’s $150,000 basis in the partnership is first reduced by the $70,000 cash received and then by the $30,000 basis of the inventory, leaving a basis in the partnership of $50,000. The building is assigned an initial basis of $80,000, and the computer is assigned $20,000. Since the bases of the building and the computer exceed the remaining basis in the partnership, the basis of the computer is reduced by $10,000, its decline in FMV. The bases of the two assets still exceed the remaining partnership basis by $40,000 ($50,000 basis in the partnership – $80,000 basis in building and $10,000 basis in computer). The $40,000 is assigned to the two assets in proportion to their respective bases. Thus, the building’s $80,000 basis is reduced by $35,556 [$40,000 × ($80,000 ÷ $90,000)], and the computer’s basis is reduced by $4,444 [$40,000 × ($10,000 ÷ $90,000)].

The sale or exchange of a partner’s interest in a partnership usually results in a capital gain (loss). This capital gain or loss is determined by the difference between the amount realized and the adjusted basis of the partner’s interest in the partnership (Publication 541). Peter realizes $32,000 from the sale of his partnership interest ($20,000 cash payment + $12,000 liability relief). He reports $2,000 ($32,000 realized – $30,000 basis) as a capital gain.

A partnership terminates for tax purposes only if no part of any business, financial operation, or venture of the partnership continues to be carried on by its partners in a partnership.

The partnership basis ($6,500) is first allocated to the $1,000 of inventory items and then $500 to Asset X and $1,000 to Asset Y, leaving a $4,000 partnership basis. Asset X is the only asset with an increase in value, thus $3,500 of the partnership basis is allocated to Asset X. The remaining $500 partnership basis is allocated between Asset X and Asset Y based on FMVs. Asset X has a basis of $4,400 ($500 + $3,500 + $400). Asset Y has a basis of $1,100 ($1,000 + $100).

Publication 541 states, “The basis of property received in complete liquidation of a partner’s interest is the adjusted basis of the partner’s interest in the partnership reduced by any money distributed to the partner in the same transaction.” Thus, Sharon’s basis in the building and land received is her basis in the partnership interest minus the amount of cash received, or $180,000 ($185,000 – $5,000). Next, this $180,000 basis is allocated by “assigning a basis to each property equal to the partnership’s adjusted basis in the property immediately before the distribution.” Therefore, the building is assigned a $50,000 basis and the land is assigned a $40,000 basis. If the partner’s basis in the partnership is not completely allocated and excess basis remains, “allocate this basis first to properties with unrealized appreciation to the extent of the unrealized appreciation. Allocate any remaining basis increase among all the properties in proportion to their respective fair market values.” The building is assigned $50,000 of unrealized appreciation, and the land is assigned $10,000. After this allocation, the basis of the building is $100,000 ($50,000 + $50,000) and the basis of the land is $50,000 ($40,000 + $10,000). The remaining $30,000 of basis from Sharon’s partnership interest is assigned based on the FMVs of the building and land, which would be $20,000 and $10,000, respectively {[($100,000 ÷ $150,000) × $30,000] and [($50,000 ÷ $150,000) × $30,000]}.

Under Sec. 732(b), the basis of property received by a partner in liquidation of his or her interest in the partnership is the adjusted basis of the partner’s interest less any money received in the same distribution. The basis of distributed property is allocated first to inventory items and unrealized receivables up to the amount of the partnership’s adjusted basis in these items, then to other distributed properties.

The sale of a partnership interest generally results in a capital gain or loss. The gain or loss is the difference between the amount realized and the adjusted basis of the partnership interest. The total gain would equal $1,500 ($5,000 amount realized – $3,500 outside basis). Only $1,000 of the gain would be classified as ordinary income ($2,000 appreciation of inventory × 50% ownership percentage). Thus, none of the other answers are correct.

Although the partnership usually does not adjust its basis for its retained property when it distributes other property to a partner, under Sec. 754, the partnership may elect to increase basis if the basis to the partnership of the distributed property exceeds the basis at which the distributee may take that property. In this case, the $1,000 ($11,000 basis of Property 1 – $10,000 basis of Mr. Gorda’s partnership interest) that is “unused” in the basis of the distributed property may be added to the basis of Property 2 retained by the partnership. Thus, the basis of Property 2 is $16,000 ($15,000 basis of property 2 + $1,000 “unused” basis).

Section 732(b) provides that the basis of property distributed by a partnership in a liquidating distribution to a partner is the adjusted basis of the partner’s interest in the partnership less any money received in the same distribution. The basis of distributed property is allocated first to inventory items and unrealized receivables up to the amount of the partnership’s adjusted basis in these items, then to other property to the extent of each distributed property’s adjusted basis to the partnership. The remaining basis increase or decrease is allocated depending on whether the adjusted bases of the distributed properties exceed the partner’s remaining basis in the partnership interest or not.

Since the partnership’s bases in the distributed properties exceed the partner’s remaining basis in the partnership, a decrease must be allocated among the properties with unrealized depreciation, in proportion to their respective amounts of unrealized depreciation (to the extent of cash property’s depreciation), and then in proportion to the properties’ respective adjusted bases (considering the adjustments already made). In this case, a $50,000 decrease [$150,000 adjusted basis – (70,000 cash + $80,000 building + $20,000 computer + $30,000 inventory)] is allocated based on the properties’ respective adjusted bases as follows:

Because there were no unrealized receivables or inventory, the sale of the interest in the partnership results in capital gain or loss (Sec. 741). The relief from partnership liabilities is treated as an amount realized on the sale [Sec. 752(d)]. Because Joseph’s amount realized exceeds his adjusted basis, he will recognize a gain of $7,000.

In a sale or exchange of a partnership interest, liabilities are treated the same as in connection with the sale or exchange of other property [Sec. 752(d)]. Therefore, liabilities assumed by the purchaser are included in the amount realized. Thus, Carl realizes $25,000 on the sale of his partnership interest ($15,000 cash received + $10,000 liabilities assumed).

The sale of a partnership interest generally results in a capital gain or loss. The gain or loss is the difference between the amount realized and the adjusted basis of the partnership interest. Her gain would be increased by the amount of liabilities in the partnership. Thus, she would report a capital gain of $15,000 ($25,000 selling price + $12,500 – $22,500 basis).

Section 741 provides the general rule that capital gain or loss is recognized on the sale or exchange of a partnership interest. A selling partner’s relief of liabilities is included in the amount realized [Sec. 752(d)]. However, under Sec. 751(a), gain attributable to unrealized receivables or inventory is ordinary income. The answer assumes that the basis in unrealized receivables is zero.

A partnership generally does not terminate for tax purposes on the death of a partner since the deceased partner’s estate or successor in interest continues to share in partnership profits and losses (Sec. 708). The Beck & Crocker partnership terminated on April 30, Year 2, because when Beck’s entire partnership interest was liquidated, the business ceased to be operated as a partnership.

Section 741 provides the general rule that capital gain or loss is recognized on the sale or exchange of a partnership interest. A selling partner’s relief of liabilities is included in the amount realized [Sec. 752(d)]. However, under Sec. 751(a), gain attributable to unrealized receivables or inventory is ordinary income. The answer assumes that the basis in unrealized receivables is zero.

Because there were no unrealized receivables or inventory, the sale of the interest in the partnership results in capital gain or loss (Sec. 741). The relief from partnership liabilities is treated as an amount realized on the sale [Sec. 752(d)]. Because Danielle’s amount realized equals her adjusted basis, she will not recognize a gain (loss).

Section 736(b)(1) states that payments made in liquidation of the interest of a retiring partner are to be considered a distribution by the partnership to the extent made in exchange for the interest of the partner in partnership property. Accordingly, Sec. 706(c)(2)(A) provides that the taxable year of a partnership shall close with respect to a partner whose interest is liquidated. Therefore, a retiring partner remains a partner until his interest has been completely liquidated by partnership distributions.

A retiring partner who receives payments from the partnership is considered to be a partner until the last payment is received [Sec. 706(c)(2)(A)]. Payments made in complete liquidation of a partnership interest are considered distributions by the partnership to the extent made in exchange for the interest of the partner in partnership property [Sec. 736(b)(1)]. Gain on a distribution is recognized only to the extent money distributed exceeds the partner’s basis in the interest [Sec. 731(a)]. Thus, gain is recognized after basis is used up, that is, on the payments Berk receives last.

Section 736(b)(1) states that payments made in liquidation of the interest of a retiring partner are to be considered a distribution by the partnership. Accordingly, Sec. 706(c)(2)(A) provides that the taxable year of a partnership shall close with respect to a partner whose interest is liquidated. Therefore, a retiring partner remains a partner until his or her interest has been completely liquidated by partnership distributions.

Because there were no unrealized receivables or inventory, the sale of the interest in the partnership results in capital gain or loss (Sec. 741). The relief from partnership liabilities is treated as an amount realized on the sale [Sec. 752(d)]. Rita’s gain is

For liquidating distributions of a partnership interest, a loss is realized when money and the FMV of property distributed are less than the AB of the partnership interest. Loss recognized is limited to any excess of the AB in the partnership interest over the sum of money and the AB in the unrealized receivables (UR). Loss recognized is characterized as if from sale of a capital asset. Partner A has a $5,000 recognized loss [$25,000 interest – ($10,000 cash + $10,000 URs)], and the loss is a capital loss.

Had property other than money, URs, or inventory been distributed, then there would not have been any recognized loss. The difference would have been added to the basis of the other property.

A retiring partner who receives payments from the partnership is considered to be a partner until the last payment is received [Sec. 706(c)]. Payments made in complete liquidation of a partnership interest are considered distributions by the partnership to the extent they are made in exchange for the interest of the partner in partnership property [Sec. 736(b)]. Gain on a distribution is recognized only to the extent that money distributed exceeds the partner’s basis in the interest [Sec. 731(a)]. Thus, gain is recognized after basis is used up, that is, on the payments Robert receives last. AB excluding liabilities is $25,000 ($40,000 – $15,000). Total payments equal $37,500 [($2,500 × 3 months in Year 1) + ($2,500 × 12 months in Year 2)]. The first 10 months of payments go against basis of $25,000 ($2,500 × 10), all of the three payments in Year 1, and seven payments in Year 2. The remaining five payments in Year 2 are capital gains.

The sale or exchange of an interest in a going partnership is similar to the sale of stock in a corporation. The gain or loss on the sale of the partnership interest is a capital gain or loss, subject to long- or short-term treatment depending upon the length of time the selling partner owned the interest in the partnership. An exception to this rule applies when the partnership owns unrealized receivables or inventory. In this case, the selling partner must allocate a portion of the sales proceeds to the unrealized receivables and to the inventory and, to that extent, will realize ordinary income.

If a partner’s interest is liquidated solely through a distribution of partnership property other than money, no gain is recognized. If the partnership distributes property other than money, the partner’s basis in the partnership must be transferred to the distributed assets. When a liquidation occurs and the partner’s basis in the partnership exceeds the partnership’s basis in the distributed assets, the excess of the partner’s basis in the partnership must also be allocated among the distributed assets. Any basis increase required is allocated first to properties with unrealized appreciation in proportion to the respective amounts of unrealized appreciation inherent in each property (but only to the extent of each property’s unrealized appreciation). Any remaining increase is then allocated in proportion to the properties’ fair market values.

The rental house is first assigned its basis of $5,000, and the vacant lot is assigned $10,000. Another $40,000 ($55,000 partnership basis – $15,000 assigned to properties) must be allocated to the two properties. The rental house is allocated $35,000 [($35,000 increase in FMV ÷ $35,000 total increase in FMV) × $35,000]. Accordingly, $5,000 still remains to be allocated. It is allocated based on the FMVs of the properties. The rental house will be allocated $4,000 [$40,000 FMV ÷ ($40,000 FMV of the rental house + $10,000 FMV of the vacant lot) × $5,000 remaining increase], and the lot will be allocated the remaining $1,000. Thus, the basis in the rental house will be $44,000 ($5,000 + $35,000 + $4,000), and the basis in the vacant lot will be $11,000 ($10,000 + $1,000).

The sale of a partnership interest generally results in a capital gain or loss. The gain or loss is the difference between the amount realized and the adjusted basis of the partnership interest. Any amount of gain attributable to unrealized receivables or inventory must be reclassified as ordinary income. Michael’s total gain would equal $30,000. Of this gain, $10,000 would be classified as ordinary income. The remaining $20,000 would receive capital gain treatment.

A partnership generally does not terminate for tax purposes due to the death of a partner since the deceased partner’s estate or successor in interest continues to share in partnership profits and losses (Sec. 708). The partnership did not terminate because the business continued to be operated as a partnership after John’s entire partnership interest was liquidated.

A partner’s adjusted basis is increased by his or her distributive share of partnership income and decreased by cash distributions from the partnership. The nonrecourse liability is shared according to the profit ratio since there is no minimum gain. Harvey’s adjusted basis at the time of sale is $19,000.

The gain or loss on the sale of the partnership interest is a capital gain or loss, subject to long- or short-term treatment depending upon the length of time the selling partner owned the interest in the partnership. An exception to this rule applies when the partnership owns unrealized receivables or inventory. In this case, the selling partner must allocate a portion of the sale proceeds to the unrealized receivables and to the inventory and, to that extent, will realize ordinary income. Therefore, she must allocate $10,000 of her realized gain of $23,000 ($47,000 amount realized – $24,000 adjusted basis) to ordinary income. This leaves a capital gain of $13,000 ($23,000 realized gain – $10,000 unrealized receivables).

Section 732(b) provides that the basis of property distributed by a partnership in a liquidating distribution to a partner is the adjusted basis of the partner’s interest in the partnership minus any money received in the same distribution. The basis of distributed property is allocated first to inventory items and unrealized receivables up to the amount of the partnership’s adjusted basis in these items, then to other property to the extent of each distributed property’s adjusted basis to the partnership. The remaining basis increase or decrease is allocated depending on whether the adjusted bases of the distributed properties exceed the partner’s remaining basis in the partnership interest or not.

Since the partnership’s bases in the distributed properties exceed the partner’s remaining basis in the partnership, a decrease must be allocated among the properties with unrealized depreciation in proportion to their respective amounts of unrealized depreciation (to the extent of cash property’s depreciation) and then in proportion to the properties’ respective adjusted bases (considering the adjustments already made). In this case, a $7,000 decrease [$60,000 adjusted basis – ($20,000 cash + $15,000 inventory + $24,000 land + $8,000 building)] is allocated based on the properties’ respective adjusted bases as follows:

Amounts received from the partnership in liquidation of a partnership interest are generally treated as distributive shares of partnership income or guaranteed payments.