Which of the following statements is true regarding the sale of a partnership interest?
A) The selling partner's share of partnership liabilities is disregarded in determining the gain or loss on the sale of a partnership interest.
B) For purposes of computing the selling partner's gain or loss, the partner's basis in the partnership interest is determined as of the last day of the partnership tax year ending before the year in which the interest is sold.
C) No reporting is required if a partner sells an interest in a partnership.
D) The selling partner could be required to report both ordinary income and a capital loss on sale of the partnership interest.
E) The partner's share of partnership "hot assets" is disregarded in determining the character of the partner's gain on the sale of the partnership interest.

Question

Quizplus · Accepted Answer

When a partner sells their partnership interest, they may have to report both ordinary income and a capital loss. The amount of ordinary income is generally equal to the selling partner's share of the partnership's "hot assets" (unrealized receivables and inventory items) multiplied by the selling partner's percentage interest in these assets. The capital gain or loss recognized on the sale of a partnership interest is generally equal to the difference between the amount realized and the selling partner's adjusted basis in the partnership interest. Therefore, statement A, B, C, and E are incorrect.

Which of the Following Statements Is True Regarding the Sale