topic Dissolving a Partnership and Assets in Business & farm

Dissolving a Partnership and Assets

acefloorcovering — Mon, 09 Mar 2026 09:24:37 GMT

My dad and I had a flooring business partnership that dissolved in December because my dad retired. I changed my entity to a sole proprietor because in California there are no single member partnerships.

For the final business tax return, how do I go about transferring the partnership assets (tools, vehicle, equipment) without having to pay back recapture on previous sec. 179 deductions that haven't fully depreciated? I am not selling, giving away, or disposing of anything. Just using them as a sole proprietor now.

Re: Dissolving a Partnership and Assets

DianeW777 — Tue, 01 Mar 2022 16:42:13 GMT

You move the assets to your personal return under your sole proprietorship as though they were always yours. The cost basis and depreciation will be 50% since you were a 50% partner. You set up the same year placed in service, the original cost basis and the prior depreciation that has been used on the partnership return. It's a 'related party' rule.

The assets retain the same character as if you had always been depreciating them except that you will use 50% of cost and prior depreciation.

Note: If the assets were inherited by you, then you will also enter as new assets the stepped up basis which is 50% of the FMV of the property on the date of death of your father.

Review the short tax year for partnerships if it was dissolved before December 31, 2021, if applicable.

IRS Publication 541

Click here for a similar situation that may provide useful information from our Tax Champs about Community Property states if applicable.

Re: Dissolving a Partnership and Assets

Mike9241 — Tue, 01 Mar 2022 20:12:39 GMT

if your father is walking away and you are not paying him for his interest, get professional advice. things can get extremely complicated when a partnership is terminated especially I the partner leaving is not compensated. as a minimum, there could be a gift tax issue and possible IRC 751 income for your dad