Partnership Assets

[barosser]

Two partners have taken assets out of their partnership, they have personally taken the liabialities that go with the trucks & trailers. This was done because of the great Franchise tax here in Texas.

Do I handle this as a sale of assets? or how do you handle this correctly.

any input appreciated

[OldJack]

Assuming this entity is truly taxed as a partnership rather than as a S-corp. Generally, partners may take/withdraw equipment as a property distribution at the book value of the equipment which becomes the partner's tax basis for future use, depreciation, or sale (unless they had contributed the equipment personally in the first place, then the tax basis may be different). Its just the reverse of putting personally owned equipment into a partnership. Therefore, there is no taxable sale to report and no partnership taxable gain or loss to pass to the individual owners. I have in the past reported the "withdrawal" on form 4797 with sale price and cost the same just to document that the asset disappeared from the books. One way to treat the liability accounts would be to remove them as a credit to the capital contribution account for each partner in the partnership. None of this would be true if the entity is taxed as a S-corp which requires the transaction to be a taxable sale at fair market value.

[RoyDaleOne]

Acquisition cost - accumulated depreciation = adjusted basis

Adjusted basis - liabilities "assumed" = distribution (Draw) amount.

[OldJack]

Acquisition cost - accumulated depreciation = adjusted basis

Adjusted basis - liabilities "assumed" = distribution (Draw) amount.

Or,

Acquisition cost $1,000- accumulated depreciation $600 = adjusted basis $400

Adjusted basis $400 - liabilities "assumed" $900 = $500 capital/owner contribution (xxxdistribution (Draw) amountxxx).

example:

$ 900 debit liability account

$ 600 debit accum depr.

$1000 credit acquisition cost

$ 500 credit owner capital account