Sold interest in partnership

[Bill Tubbs]

Real case, but the numbers have been changed (in part to simplify calculations).

Partner sold his entire interest in the partnership for $50,000 cash to another partner. His basis was $40,000 (including contributions and his share of profit/loss over the years). As part of the deal of him withdrawing entirely from the partnership he also withdrew machinery that he had contributed to the partnership years ago -- at the time of contribution the used machinery had a FMV of $8000 and has since been fully depreciated by the partnership down to an internal basis of $0. When he withdrew the machinery from the partnership the machinery had a FMV of $6000.

I'm figuring he either:
a) has a long-term capital gain of $10k, and his basis of the machinery is $0, OR
b) has a long-term capital gain of $16k, and his basis of the machinery is now $6000, OR
c) I'm totally off-base

Is there any impact on the partnership?
Impact on the purchasing partner would be his basis increases by $50k, right?

Thanks,
Bill

[Bill Tubbs]

anybody?

Anybody have any pointers on this?

Thanks,
Bill

[MichaelG]

A couple of questions come to mind:

1) Which occurred first, the sale of his partnership interest or withdrawal of the equipment? It seems that the equipment withdrawal would need to occur first. Then that could be treated as a distribution, reducing his basis.

2) What was his ownership level before selling his interest to another partner? If 50% or more, you have a termination of the partnership to deal with.

Keep in mind that the two transactions you described need to be separated. Withdrawal of the equipment needs to be handled at the partnership level. Sale of the partnership interest is outside of the partnership.