After selling my partnership interest, my K-1 Ending Capital Account is $0. Should I enter $0 as the Partnership Basis, or include Cumulative Adjustments to Basis?

[Rick19744 · Accepted solution]

As a partner in a partnership you should be tracking your basis in your investment.  This begins with your initial capital contribution and is updated annually for the applicable K-1 line items.

If you have not done this, you will need to prepare this schedule.  If you have done this, then update your basis schedule for your final K-1 line items EXCEPT for any liquidating distribution.

When you indicate to TT that you have disposed of your partnership, you will use the liquidating distribution as the sales price and your basis is the cost.

Your overall gain or loss on the investment will show up on Schedule D and the applicable form 8949.

[robertandalli]

Thank you very much for your reply. I assume that the partnership basis equals the sum of the cumulative capital contributed and the cumulative adjustments to basis. Thanks again!

[Rick19744]

You're welcome.

[acegal]

If the capital account is calculated on a tax basis, would the ending capital account always be zero in the final year of the partnership?  And would Box L withdrawals and distributions equal line 19 distributions plus the final, liquidating distribution?

[Rick19744]

In a perfect world, the answer is 'yes".

Sometimes you will see adjustments running through the "other increase / decrease" line to zero out the capital account.

[acegal]

Thanks for the prompt response.  Am hoping that my Investments live in a perfect world. 😬

[Redheather]

I can understand what you are saying, but please bear with me if I give some simple  numbers as I can probably understand better.  

I have bare land, inherited basis a three years ago = $50000.

Incorporated into LLC, so K-1s are needed yearly.

Expenses every year of property taxes and $100 HOA fees.  The property taxes feed thru K-1 into my tax return...I have a spread sheet of HOA expenses each year, plus they go on K-1 as non- deductible expenses.  

So, if I sell this land, what is my 'basis' or 'cost' to put on the sale paper?  

I am confused with what I should have been putting into the K-1 on the lower left corner Part L as the partner's capital account analysis.  I appreciate your help!  it seems like it should be simple and I want to bring everything up to date on a spread sheet before I sell.