Originally Posted by Wnhough
NOT in your case; decreases in partnership liabilities affect your outside basis, the amount of money or services you provided to the partenrship/LLC in return for a partnership interest. increases. regulations treat decreases in partnership liability as distribution from the partnership to you.The decrease in partnership liability may result in a gain that you?d need to report on your income tax return, but only if the decrease resulted in a gain that exceeded your adjusted basis.
what imean is that; say
you became a limited partner in the Partnership by contributing $10k in cash on the formation of the partnership. The adjusted basis of your partnership interest at the end of the current year is $20k, which includes your $15k share of partnership liabilities. The partnership has no unrealized receivables or inventory items. you sell your interest in the partnership for, say, $10k in cash. you had been paid your share of the partnership income for the tax year.
now you realizes $25kfrom the sale of your partnership interest ;$10k cash payment + $15k liability relief. you report $5k;$25k realized - $20k basis, as a capital gain
i guess in yoiur case your basis was $25K and your realized $21.5K;$20K+$1.5K. as your basis>your reralkiized icnoem no capital gain realized