I have transferred capital out of a partnership in...
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I have transferred capital out of a partnership into a new LLC. It asked if I dispersed or sold any of the capital for that k-1. How do I answer that question?

There was no sale or closing of the partnership, I just transferred my % of capital into a new LLC which now holds it.  I got a k-1 from both, the first stating the beginning capital and ending capital now zero.  The second one (LLC) stating the beginning capital zero and the ending capital the beginning capital of the original one.  

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Level 7

Business & farm

If you transferred your capital out of one investment into another, you will report the first investment as "sold or disposed of" for zero dollars.

From the IRS' perspective, you received a final distribution from the first investment and used that "money" to buy your second investment. This may trigger a tax gain or loss, depending on your basis in the first investment. Be sure you complete the Capital Account Information (see screenshot below - click to enlarge) during the K-1 interview for both investments.

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