If the partnership has hot assets at the time a partnership interest is sold, the selling partner must allocate a portion of the sale proceeds to these assets and recognize ordinary income (loss).

Question

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This is correct. When a partnership interest is sold, any gain or loss on the sale is allocated amongst the partner's capital account and any hot assets. Hot assets refer to Section 751 property, which includes ordinary income property such as inventory or accounts receivable. The selling partner must allocate a portion of the sale proceeds to these hot assets and recognize ordinary income (loss) accordingly.

If the Partnership Has Hot Assets at the Time a Partnership