Capital Contributions are rarely reported as negative numbers, as this reflects cash or property that you contributed to the partnership. Current Year Income can be negative, of course, if there was a loss for the year (less income than expenses).
I understand that your entire investment was liquidated, but the capital loss you can report is directly related to your actual adjusted basis. Completing the worksheet is necessary to determine your basis.
Basically, your adjusted basis is the total of:
- Capital Contributions (cash or property you invested)
- plus or minus Allocated Income since inception (which can be different from the K-1)
- minus Distributions (cash or property paid back to you)
- plus or minus Allocated Debt (qualified resource financing on the K-1).
The difference between your basis and what the partnership records can be due to several factors, mostly in the allocation of income and debt. For example, tax exempt income is recorded by the partner but not the partnership. You'll see other factors on the IRS worksheet.
Bottom line: The income (or loss) from Schedule K-1 is reported on your tax return in whatever category is appropriate (ordinary, rental, portfolio, etc.). The gain or loss from the liquidation is reported as a capital gain/loss, which is taxed differently from the income/loss from the K-1. This is where you receive the benefit from the liquidation (if you can consider a loss as a benefit).
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