Business & farm

I agree with the other responses in that you need to have a one on one with a tax professional as a forum such as this is not conducive to back and forth and we can't see any documents, etc.

However, at a high level, this is what I see:

• Don't lose sleep, but I would either make an appointment with the preparer of the 1065 and K-1's or meet with another tax professional if you are not comfortable with the preparer of the 1065.  Take all your K-1's received to this appointment.
• Without being able to see any documentation and ask questions, we will need to make the assumption that the K-1 you received is correct; right or wrong, this is what is being reported to the IRS.
• Having said that, I believe the piece you are missing is that you haven't been tracking your basis in this investment.  This is critical as there are several keys here:
  • Unless you know your tax basis in the investment, you can't determine your overall gain or loss
  • You also need to know what your liquidating distribution is; maybe this is the $66,820 figure?
  • Your K-1 activity impacts your tax basis, so while you may be reporting the gains reflected on the K-1, this increases your tax basis.
  • Bottom line is you need to determine your tax basis BEFORE accounting for any liquidating distributions.  At a minimum, based on the limited facts, you started with the $55,000, you need to adjust this for the applicable lines on the K-1 and any capital contributions you made.  This needs to be adjusted for each year including the final year K-1.  So at a minimum your tax basis is the $55,000 plus the Section 1231 gain on the K-1 ($64,821).  The Section 1250 gain is not really a separate gain.  This figure will go into the computation of any capital gains tax that may be subject to 25% tax rate vs whatever your normal capital gains tax rate is.  
  • The Section 179 is the possible recharacterization of capital gain to ordinary income.  This is Section 751 hot assets.
  • I am not real clear on what the $58,000 represents.  If this represents actual capital you contributed, then this is also added to your tax basis.
  • When you look at the pieces that you haven't accounted for, in the end, it appears you have some ordinary gain (result of Section 751) and then maybe a capital loss.  Just not clear.
  • I just don't think it is as bad as you think it is, but you need to have someone walk through the tax implications.