Sale with Suspended Losses

[Beersheba]

What affect does the sale of a partnership interest have as a result of suspended losses (in excess of basis).

Better yet, an example with fictitious numbers...

Facts: A partner has a suspended losses of $25,000 because K-1 losses have exceeded basis. His basis is zero. He receives $100,000 resulting from the sale of his partnership interest.

Which of the following is true?

1. Taxpayer finally gets the benefit of the losses, and reports a long-term capital gain of only $75,000.
2. Taxpayer reports a long-term capital gain of $100,000. (Zero basis, no effect of suspended loss)
3. Taxpayer reports a long-term capital gain of $125,000.
4. If the K-1 for the year of sale indicates income of $10,000 - then $10,000 of the gain in any of the above must be short-term.

I did query the IRS on the subject, and got a clause related to the Republic of Slovenia, but nothing that would help.

Thanks in advance -

[TaxGuyBill]

#2.


For 4, if the K-1 has $10,000 of income, that adds $10,000 of Basis. So $10,000 of the $25,000 can be used, and the other $15,000 disappears. That is in addition to the $100,000 capital gain from selling the Partnership Interest.

[Beersheba]

Thanks Bill. Looks like the suspended losses are up in smoke and a non-factor upon the sale.