I joined two other partners to purchase a business. Each partner invested $50,000. We were not able to get enough capital to start the business. Therefore, we sold the business for a $300,000 gain. Each partner received $100,000, which included the $50,000 investment. How does the IRS tax this gain?

ANSWER

The BIDaWIZ Team's Answer:

We're assuming the entity is setup as a partnership. As per IRS publication 541, any gain recognized is generally treated as capital gain from the sale of the partnership interest as of the date of the distribution. Please note that if the selling partner is relieved of any partnership liabilities, that partner must include the liability relief as part of the amount realized for his or her interest.