How enter Final K-1 for final disposal /liquidated LLC -- in TurboTax Deluxe? I.e., how to complete the "Enter Sale Information" screen? The info is NOT in my Final K-1 !

[Rick19744]

As a member of an LLC you should be tracking your basis in this investment.  See the attached IRS link to help you determine this if you have not already done so:

https://www.irs.gov/publications/p541/ar02.html#en_US_201601_publink1000104289

Once you have determined your basis, including updating this for the final K-1 figures, you will have what you need.

Your "selling price" will be your liquidating distribution.  Make sure you don't double count this; include it in your basis calculation and then also as selling price.

If after adjusting your basis for the liquidating distribution you still have basis remaining, then you have a capital loss for this amount.  This will be reported on Schedule D and the applicable form 8949.

If after adjusting your basis for the liquidating distribution your basis goes negative, then you have a capital gain for this negative amount which essentially puts your basis back to zero.  Once again this will be reported on Schedule D and the applicable form 8949.

The two figures you need to add to the input sheet you attached are the liquidating distribution (selling price) and your basis, which you need to calculate.

[jsilver816]

I am a member of LLC and this is final year of LLC. I have a negative capital account of $25K. How is this reported on Turbotax Home and Business on the K1 section.?  Is this treated as capital gain or ordinary income?

[Mike9241]

we can't see your k-1 and don't know what occurred in prior years.  it's your responsibility to keep track of basis. if the return was prepared by professional preparers they may be able to provide basis worksheets. 

also what year did it go negative?  we can't say whether you have capital gain income or loss limitation. 

here's a link to prepare your own but you may have to start with the first year unless your capital a/c has been kept on the tax basis.

https://www.thetaxbook.com/updates/TheTaxBook/Client%20Tax%20Tools/Partners_Adjusted_Basis_Worksheet... 

[jsilver816]

LLC started in 2015.  No property was contributed. Service industry. Tax basis with zero capital account to start. Capital account went negative in 2017 and 2020 entity is closed on 12-31-20. Final K1 will have $29020 as negative capital account. No ordinary income this last year from LLC. 

I was playing with TurboTax on the K1 entries and I do not see how to put the negative capital account in TurboTax. I’ve been told that this would be treated as capital gain. 

[Rick19744]

As noted by @Mike9241 you need to determine your tax basis.

Your tax basis is NOT the same as your capital account.

There are several missing facts here that are key in addressing your question:

• You indicate "zero capital account to start".  Does this mean you did not contribute any cash upon forming the LLC?
• It is key to understand how you obtained your LLC interest; contributed cash, an LLC interest for services, etc.  If the later, this complicates the issue even more.
• You need to determine your tax basis.  This begins with your initial contribution and is adjusted every year for the applicable items on your K-1.  The LLC is not that old and you should have sufficient information assuming you have your K-1's from the inception.
• While your capital account can go below zero, your tax basis cannot go below zero.
• For the $$ at stake here, based on your facts, I believe it would be in your best interest to pull together all your K-1's and meet with a tax professional.  This individual would be able to help you determine your tax basis, determine if you have correctly filed your tax returns and then determine the tax impact to you as a result of the LLC liquidating / closing.  This should take a couple hours at most and the money spend will allow you to understand if you need to amend any prior returns and then file an accurate 1040 for 2020.

[Mike9241]

many partnerships do report capital a/c's on the tax basis. the only issue is if there are liabilities that add to or subtract from that basis such as qualified nonrecourse financing.   however, on a final k-1 all liabilities are likely to be zero so there is literally a wash in the change in them 

[jsilver816]

Thanks. My Partner who is CPA just said that I should treat the final negative account as capital gain on ScheduleD. 

There was no liabilities at final K1. 

[Rick19744]

Just for others that may read this thread, while Section L on the 1065 K-1 may be reported on the "tax basis" (and is mandatory for 2020 tax return years and forward), this is just a tax capital account.  Once again, this is NOT your tax basis.

Your tax basis needs to take into account your share of liabilities and these are not reflected in Section L.

Liabilities that become part of your tax basis will vary depending on whether you are a limited partner / member, general partner, and if the K-1 is completed correctly, should be reflected in Section K of the K-1.

This is a complicated area that is misunderstood by many.  The area of liabilities and tax basis is critical in determining the allocation of the partnership items for the K-1.

So for others that read this, there are still not sufficient facts to determine whether your facts and circumstances will result in the same outcome.

[nmlnml]

I received a K-1 (Form 1065)  which I was a limited partner and sold my shares in 2020. How can I file my tax, which forms?

[DaveF1006]

To enter your K-1 information, you need to have Turbo Tax Premier or Self-employed/Home and Business for the software version. To enter in Turbo Tax online: 

1. Log into or open Turbo Tax
2. Go to federal>income and expenses>S-corps, Partnerships, and Trusts>show more
3. Schedule K-1>start
4. Be sure to select Partnership's, LLC Form 1065) as the form to report your K1

If in Turbo Tax Software

1. Open Turbo Tax
2. Go to Federal Taxes>Wages
3. Wages and Income>choose what you work on
4. Business items>Schedule K1
5. Be sure to select Partnership's, LLC Form 1065) as the form to report your K1

As you enter your information, don't be concerned about entering your percentage of shares, liability shares or capital amounts unless you have that information handy. This information is not relevant for reporting your K1 information.