You have three issues to address:
- The capital account matter is straight forward. You just "transfer" your parents capital to your K-1.
- This is just an internal "bookkeeping" matter
- On your parents final K-1 you would show a decrease on the respective K-1 in Section L other increase (decrease) line; a decrease.
- On your K-1 you would show this same amount on your K-1 same line; an increase.
- This should keep your balance sheet in balance.
- The bigger issue (2nd issue) is updating your tax basis (outside basis).
- Because you inherited this interest from your parents, you need to adjust your tax basis for the FMV of the interest that you inherited.
- Since you will need to support this adjustment, this means that you technically need to value the partnership.
- Since the taxpayer has the burden of proof, it's best to have this done ASAP.
- You may want to contact a tax professional who can give you some recommendations on who can handle this valuation matter for you.
- The third issue is determining the timing of this transaction.
- This will require an understanding of the "inheritance" process.
- What legal documents were drafted
- What do these documents say; when and how property is disbursed
- Does the estate get a k-1 until the partnership interest is transferred
- All this means potentially a few short period K-1's
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
