AOL will sell its Bebo social network site to private investment firm Criterion Capital Partners for an undisclosed sum, as it tries to restructure its business and deal with declining revenue.
Thursday's announcement comes as AOL has been trying to streamline operations since being spun off from Time Warner Inc last year. It has been struggling with a declining Internet access business and weak advertising revenue.
In April, AOL said it planned to either sell or close down Bebo, bought more than two years ago for $850 million (£573 million).
The Wall Street Journal previously reported that the Bebo sale would probably be at a "small fraction" of what AOL originally paid.
AOL said the deal will give it a meaningful tax deduction, and forecast it would record a deferred tax asset and benefit in a range of $275 million (£185 million) to $325 million (£219 million) for the second quarter.
Bebo, founded in San Francisco, gained popularity in the United Kingdom but never gained traction in the United States and has lately also been losing users to competitors' sites like Facebook and Twitter.
AOL in April described Bebo as a business in decline and requiring significant investment which it was not in a position to provide.
Criterion Capital Partners' managing partner Adam Levin, who led the acquisition, said on Thursday that Bebo was an attractive media site due to its "young, highly active user base, revenue history, presence in countries throughout the world and solid technical infrastructure."