Disposition of Partner’s Interest
1225 Publ 541 (PDF) · 2026-10-03 edition · updated 2026-10-04 · United States
The following discussions explain the treatment of gain or loss from the disposition of an interest in a partnership.
Abandoned or worthless partnership interest. A loss incurred from the abandonment or worthlessness of a partnership interest is an ordinary loss only if both of the following tests are met.
The transaction is not a sale or exchange.
The partner has not received an actual or deemed distribution from the partnership.
If the partner receives even a de minimis actual or deemed distribution, the entire loss is generally a capital loss. However, see Payments for Unrealized Receivables and Inventory Items , later.
For information on how to report an abandonment loss, see the Instructions for Form 4797, Sales of Business Property. See Revenue Ruling 93-80 for more information on determining if a loss incurred on the abandonment or worthlessness of a partnership interest is a capital or an ordinary loss.
Partnership election to adjust basis of partnership property. Generally, a partnership’s basis in its assets is not affected by a transfer of an interest in the partnership, whether by sale or exchange or because of the death of a partner. However, the partnership can elect to make an optional adjustment to basis in the year of transfer.
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