Partnership termination - how to report assets

[as58664]

My LLC (taxed as a partnership) has closed effective 12/31/21 and all property owned by the partnership (vehicles) have been distributed to the two owners (husband and wife). I am not sure how to show this on my partnership return and K-1. Do I show it as an asset sale with a sales proceeds of zero? Turbo Tax seems to be forcing me to do this since I marked that this year is my final return.  Or do I show it as a distribution to the owners?

Also, what happens when owners sell the vehicle in the following year? Do they have to report this on their individual tax return?

Thanks!

[Anonymous_]

So this is a liquidation? 

I will defer to @Rick19744 

[as58664]

Correct - Partnership is closed effective 12/31/21 and all assets being distributed to the owners (several vehicles and small amount of cash)

[Mike9241]

If you received the property in liquidation of your interest, your basis in the distributed property is equal to the adjusted basis of your partnership interest reduced by any cash distributed in the same transaction.

after that it becomes personal property. if immediately sold for more than tax basis you have a reportable gain. if sold at a loss it's not deductible.

[as58664]

thank you- that clears up what to do in the following year on the personal return

So on the partnership return, do I show these as sales of the assets with a sales price of zero?

[Rick19744]

No.  The distributions will be reflected on the K-1's line 19 with the appropriate code (A or C).

As @Mike9241 noted, you will take what is known as a substituted basis in the assets distributed in liquidation.

• Your outside tax basis will be updated for your final K-1 applicable lines (except for line 19C)
• You will then allocate the remaining outside tax basis amongst the assets distributed
  • There are specific rules on how this allocation works 
  • This starts with a carryover basis in the property
  • If there is either excess or insufficient tax basis to allocate, then the rules get more involved
  • The rules are governed by Section 732
  • Google regulation 1.732-1 for the provisions.  For some reason my copy and paste isn't working.  Very annoying.
• You will also step into any depreciation recapture upon the sale of any of the assets distributed

[as58664]

thanks so much.

Turbo tax is forcing me to "dispose" of the assets since I am marking my partnership return as final.  Do you know how to get around this?

[Anonymous_]

What, exactly, is "forcing" you to dispose of assets? 

I have several tests returns and the two that are marked as final do not present this issue.