A partnership has accounts receivable with a basis of $0 and a fair market value of $20,000 and depreciation recapture potential of $30,000.All other assets of the partnership are either cash, capital assets, or § 1231 assets.If a purchaser acquires a 40% interest in the partnership from another partner, the selling partner will be required to recognize ordinary income of $20,000.

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When a partner sells their interest in a partnership, any gain from the sale is treated as ordinary income to the selling partner to the extent of the partnership's accounts receivable with a basis of $0 and a fair market value greater than zero. In this case, the partnership has accounts receivable with a fair market value of $20,000, so if the selling partner sells a 40% interest in the partnership, they would recognize ordinary income of $20,000 (40% of $20,000). The depreciation recapture potential and other assets of the partnership are not relevant for this calculation.

A Partnership Has Accounts Receivable with a Basis of $0