Where do I put a comment about how it is now a disregarded entity?
Nowhere. When you file a "final" 1065 and issue the "final" K-1's, the partnership is closed/dissolved and no longer exists. It's gone permanently and forever, vanished into la-la land to never be seen or heard from again.
So there's nothing in existence to "convert" to anything.
What you're doing is a two-step process that it's clear you don't understand yet. So I'll try to explain it here.
The partnership is "going away" permanently and forever with the filing of the "final" 1065 and the issueance of the "final" K-1's. The ending balance on everything for the partnership *MUST* be zero with the final 1065.
If the partnership carried any inventory, then the End-of-Year (EOY) inventory count *MUST* be zero. If it's not zero, then the partnership continues to exist. So even if one of the owners/partners has to indicate that all remaining inventory was "removed from the business for personal use", then that's what you do. It's not up for debate.
If the partnership had any assets listed in the Business Assets section, then all of those assets must be disposed of by the partnership one way or another. Typically for a situation such as yours, it would be indicated that the asset was "removed for personal use". However, if the listed asset was a capital contribution made by one of the partners, then you must show the return of that asset to the contributing partner on the K-1 in order to remove it from the business.
If the partnership had *ANY* vehicle use in *ANY* year while it was operating, then that vehicle also has to be disposed of by the partnership. Even if the business use was less than 100%. How it's disposed of by the business can get complicated, because it depends on how it was acquired by the partnership. Did the partnership buy it? Lease it? Maybe it was a capital contribution by a partner to the partnership? Something else?
Finally, any money left in the partnership after paying all debt the partnership is liable for *MUST* be distributed to the partners and shown on the K-1 as income to that partner or partners. The balance sheet on the partnership *MUST* be zero for everything. No ifs, ands or buts on that either. The IRS says so.
Now the above just covers closing the partnership. That's it. If you will be the sole owner of the business now, then you have a sole-proprietorship or single member LLC which is reported on SCH C as a physical part of your personal 1040 tax return. Transfering/entering assets and inventory correctly since they are transferred from the now-closed and defunct partnership can be it's own beast. Doing it wrong will cost you dearly too. For example, if you have assets to transfer, then it doesn't matter if that asset is fully depreciated or not. *YOU* also have to "take" all that prior year depreciation that was claimed by the partnership. That means the business "start date" on your SCH C will *NOT* be the year you became sole owner of the business. It will be the day/year the partnership originally opened, even if it was 50 years ago.
So as you should see by now, this ***CAN*** be extremely complicated if you don't know what you're doing. While I'm perfectly willing to help here as questions arise (and questions will arise) you may find it more economical to sell professional help to deal with this and educate you one it. Doing things wrong will cost you dearly when the IRS catches it, and the fines, penalties, interest and back taxes can have the potential to bankrupt your "new" sole-proprietorship/single member LLC before it has a chance to even get off the ground on it's own.
