I will apologize for my ignorance in advance!
A client purchased a limited partnership interest in 2018 for $5,000 but was credited with the outgoing partner's capital account of $20,000. I have kept the outside basis each year accounting for income, distributions, and other outside basis adjustments. The K-1s issued to the partner reflect the partner's inside basis which has been consistently $15,000 higher each year. In 2021, the partnership transferred all of its ownership rights to a non-related third party which took over the partnership. There was no cash or property exchanged and the client's K-1 has never reported any liabilities. The existing partners simply wanted out.
Assume for simplicity purposes, that the income and distributions each year were equal. Therefore, at the time of the 2021 transfer, the client's outside basis was still $5,000 and the K-1 shows a decrease in basis of $20,000 due to the transfer. Does the client have a $15,000 gain?
A client purchased a limited partnership interest in 2018 for $5,000 but was credited with the outgoing partner's capital account of $20,000. I have kept the outside basis each year accounting for income, distributions, and other outside basis adjustments. The K-1s issued to the partner reflect the partner's inside basis which has been consistently $15,000 higher each year. In 2021, the partnership transferred all of its ownership rights to a non-related third party which took over the partnership. There was no cash or property exchanged and the client's K-1 has never reported any liabilities. The existing partners simply wanted out.
Assume for simplicity purposes, that the income and distributions each year were equal. Therefore, at the time of the 2021 transfer, the client's outside basis was still $5,000 and the K-1 shows a decrease in basis of $20,000 due to the transfer. Does the client have a $15,000 gain?
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