Sold interest in partnership

[Bill (Wisconsin)]

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

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

[jainen]

>>a) has a long-term capital gain of $10k, and his basis of the machinery is $0,<<

Sounds right, assuming the distribution was not part of the partner's distributive share of income. Other than potentially affecting the retiring partner's basis, the distribution would be treated as a separate transaction from the sale of his partnership interest.

[Bill (Wisconsin)]

>>a) has a long-term capital gain of $10k, and his basis of the machinery is $0,<<

Sounds right, assuming the distribution was not part of the partner's distributive share of income. Other than potentially affecting the retiring partner's basis, the distribution would be treated as a separate transaction from the sale of his partnership interest.

Thanks Jainen for confirming my take on this. I think the client was hoping for option B as then he'd be able to depreciate the machinery in another Sch C, saving self-employment tax. Oh well...

[mircpa]

Is outgoing partner not require to recapture depreciation previously claimed on asset ?