Partnership termination questions

[dhawkcpa]

Partners A & B own one commercial rental property. It is rented all of the year and the profit is 14K for 2009. Profits are split 50/50.

B's health is failing so a quick liquidation happens on 12/31/09. A pays off the total remaining mortgage of 50K directly and pays B 100K for his share of the partnership.

A puts the property into a single owner LLC and actually sells it on 1/27/10 for 300K.

I'm confused about how A's payments change the capital accounts and their basis which were equal until the liquidation.

Does B get capital gain treatment on everything and does A deal with recaptured depreciation at the sale in 2010?

I haven't done many partnerships as you can see. Thanks for any tips.

Dennis

[taxea]

By written agreement of the partners prior to the liquidation then you can allocate by % based on how the agreement is written.

[JON]

I will give it a try.

As long as the IRS does not call it a "STEP" transaction I think the folowing:

Although basis is tracked by the partners not on the partnership books B gets allocated on a per day basis for the 2009 activity of the partnership and then sells his partnership interest to A at the close of business on 12/31. Unless there are "hot assets" ie cash to accrual, 1245 depreciation recap I think the gain/loss is all capital in nature. Bs basis may match that of the books after recording all 2009 operating activity if he owned 50% since day one, but that question is handled by who (you) prepares that return.

The money A pays B becomes an addition to the asets and basis of the building sold. Set it up as building, land or whatever assets it should be assigned to. Then record the sale.

Now lets see other ideas.