Investors & landlords

the only way to zero out both capital accounts is to transfer the balance in your capital account to his. 

this would be a gift between spouses so no gift tax reporting would be required. if you don't do this you will have a balance showing up on the k-1 while your spouse will have a negative balance.   this could and I stress could increase audit risk. 

 

in schedule L on the K-1 I would use the other increase/decrease line