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Deductions & credits
On your Schedule K-1 Section L, is the negative number listed as Capital contributed during the year or as Other increase (decrease)? Is there information in Section K for Partner's share of liabilities? This is where the foreclosed note should be reported.
If you have entered all the information from the K-1 accurately, you may benefit from following Champ Mike9241's advise to contact the company that prepared the K-1 for more information on what created a negative capital contribution and help entering the information on your tax return.
Because you invested a lot of money in this partnership and expect a tax benefit from the loss, you should take the time to calculate your adjusted basis. The IRS provides a worksheet for the current year on page 3 of the Instructions for Schedule K-1 (Form 1065). Since the required method for reporting a partner's basis changed in 2020, you can use that K-1 to begin. Sometimes the capital balance reported by the partnership is the same as your basis, but often this is not the case.
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