partnership sale

Forum|Forum|6 years ago
December 31, 2019
5 replies
32 views

Scenario: If a partnership (containing only two partners) where one half is bought out by a new entering partner, takes place and the new partner pays the exiting partner $40K for the share into the business, - how is the $40k expensed or depreciated? This is for the exiting partner's share of equipment and goodwill.

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George4Tacks

Level 15

One partner buys out another = Schedule D for the selling partner. The partnership is not receiving or expensing any of the $40,000.
The exiting partner should not have any equipment, it should be owned by the partnership.
The exiting partner may have goodwill, but the partnership should really own the goodwill of the business.
You may find https://www.irs.gov/newsroom/questions-and-answers-about-technical-terminations-internal-revenue-code-irc-sec-708 of interest.

Answers are easy. Questions are hard!

abctax55

Level 15

The simple version is:

Old partner (selling partner) has a gain or maybe a loss on the $ 40,000 received.

New partner (buying partner) has $ 40,000 *outside basis*.

The partnership reflects the change in ownership by issuing part year K-1 to the old partner & the new partner (unless all this happens tonight at the stroke of midnight...)

HumanKind... Be Both

jbdaigle1102Author

Level 3

so basically the entering partner cannot deduct the $40k ?

George4Tacks

Level 15

It is like the new partner bought some stock in Uber. He deducts it when he sells, adjusted for changes to basis from the partnership.

Answers are easy. Questions are hard!

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