With respect to weinbecb's comment that "you should report distributions as long term capital gain on line 12 of Sched D and supplemental losses (mainly box 1) as losses on the same line 12", the IRS is pretty clear that losses cannot be deducted once the basis in a partnership goes to zero. See the Caution in the Worksheet for Adjusting the Basis of a Partner's Interest in the Partnership in the IRS Schedule K-1 Partnership Instructions, https://www.irs.gov/instructions/i1065sk1. So only the first half of weinbecb's comment makes sense, i.e. once the basis of a partnership goes to 0, you should report distributions as long term capital gain on line 12 of Sched D. If the partnership is subsequently sold, make sure the distributions taken as capital gains are not included in the cumulative adjustment to basis that the partnership reports (if you are using that). That would be reporting the same capital gains twice. If they are, subtract out gains previously taken.
