Answers · Partnerships · Form 1065
How Is the Sale of a Partnership Interest Taxed?
Sale of a partnership interest is generally capital under §741, except §751 can make part ordinary.
How it works
The rule, and what it turns on.
Amount realized includes relief from partnership liabilities; outside basis determines gain/loss.
Example
$100,000 cash plus $40,000 debt relief can create $140,000 amount realized before basis and §751 analysis.
Common mistakes
What we see go wrong, and what we do instead.
- Ignoring debt relief.
- Treating all gain as capital.
A better approach
- Compute §751 hot-asset statement and consider §754 election.
Authority
Where this comes from, so you can check it.
IRC §§741, 751, 752, 754.
Relevant case law
Crane v. Commissioner, 331 U.S. 1 (1947), and Commissioner v. Tufts, 461 U.S. 300 (1983) - important authorities on
liabilities, basis, and amount realized.
Educational information, not individualized tax advice. Treatment depends on your facts, entity classification and tax year, and IRS instructions change. Confirm your own position with us before relying on it. Mint Associates does not provide legal services.
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