tax consequences of transferring interest in general partnership

[simplicity]

Partial interest is transferred to son who takes on half partnership liability. What is consequences to the partner who lowers his interest to 5%. This is a family owned general partnership. The son takes 750000 liability in partnership and the doner  partner liability is reduced by half to 750000.

[sjrcpa]

Partner made a gift to son.

Relief of debt is a deemed distribution.

[simplicity]

The gift or sale price is 720000. the partnership interest is 1440000.  I'm answering questions on the individual K1 of the partners individual taxes.  Does FMV come in to play. thank you for helping me with this

[sjrcpa]

For gift tax purposes, the gift made is the FMV of the partnership interest given to the son.

The son gets the father's basis in the partnership interest he receives.

Try using some more words. You get plenty of space. I have no idea what you mean by "The gift or sale price is 720000. the partnership interest is 1440000"

[simplicity]

I'm sorry.  This was not actually a gift. The son assumed responsability for half of the debt. The whole debt was 720000. The son committed to pay half of the debt for partnership interest in the partnership. The Fathers percent dropped to 5% with the son owning 95%. I know nothing changes for the partnership. But is this going to constitute a taxable transaction for the individual partner dropping his partnership interest. No money or property changed hands. When the Father inherited the partnership the FMV of that part of the estate  was over a million dollars.  Your help is very much appreciated. 

[sjrcpa · Accepted solution]

So son is purchasing a partnership interest by assuming $360,000 debt. Is this equal to the FMV of the partnership interest? Or below?

Father's share of liabilities is reduced by $360,000. This is a deemed distribution to father . It's taxable to father to extent it exceeds father's basis in the partnership immediately before the transaction. Father's basis is not its value on the day he inherited it. It's just the starting point for the calculation.

Are there legal documents for all of this?

"The Fathers percent dropped to 5% with the son owning 95%" So how was this a partnership before this if father owned 100%?

[simplicity]

The Mother owned 5% Deceased in 2021. The Father had 95%.  For 2020 Father 5% , Grandmother 45%  Son 50%.  Just didn't know ramification for Father decreasing his  per cent .  no legal paperwork has been established, only through the bank.

[sjrcpa]

What was done thru the bank? The loan got rewritten?

I still don't understand the ownership numbers

[simplicity]

Ownership numbers were given to me by clients. They confirmed proper paper work was performed. Thank You so much. Your help was worth very much to me in getting this solved. Your the greatest!.

[sjrcpa]

I'm happy you're happy.