I sold a percent of my ownership back to the other owners. I am a Limited Partner...

Made up numbers - They paid cut me a check for $1,500 for those shares and my share of partnership liability decreased from $25,000 to $5,000.

My question is, do I have to report the decrease in liability ($20,000) as income and get taxed on it?

Thank you.

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

I did not put any money into the company... I was a junior partner to begin with...

yoour inside basis of the partnership interest is the money plus the adjusted basis of any property you contributedso unless you contributed anthing, no basis and as liability amt reduced exceeds your zero basis then you may be subject to taxes on your gain