Tax Decision I have to Make- $1 value sell-out for failing asset verses continuing K1

[h86those7taxes84ever]

I have a failing real estate private partnership investment  that looks like I will lose everything on.  The general partner has been providing K1s for the last 7 years.  I have an opportunity to sell out to the general partner for a $1 value.  I do not know what tax reporting instrument will be provided by the partner.   Will it be a final K1 ( I suspect not). I assume somehow I would have to compute the difference between the depreciated value of the asset and the $1 value as the loss and record it in TurboTax next year.  Or is it simply the difference between my initial investment and the $1 sale price?  I really don't know what I don't know here.

I am trying to decide whether to do this or not, that is , take the $1 sale value and declare the resulting loss for 2025 tax return,  or wait for the investment to slowly die and assets transferred to preferred bond holders ( and presumably get a final K1 in 2026 or 2027 or ??) showing the final dissolution of the limited partnership.  I don't l know whether I will need to enter special forms in Turbotax to record this transaction or not?

I assume I just cancel the carryover of the current K1 for this investment when I start my 2026 return. Will I need to retain any of that information for calculating the resulting final loss?   Should I try to engage with a local tax consultant and dig more?

[jtax]

It is indeed a good idea to consult a professional. This is a very complex area.

But perhaps a couple of things that might help you ask the right questions.

First, if you expect to get nothing out of the asset, then there is value in just being done with it, if only to have things be simpler in the future. If you expect to get something out, you have to decide whether it is worth waiting. Factoring into that is whether or not a loss in this tax year is better or worse for you than it would be in the future.

Depending upon the details of the K-1 over the years, you may had losses in one or more years. Usually those are passive losses unless you participated in running the activitiy. Those losses might have reduced your income in those years (if you had other passive gains) or not (if you didn't have enough passive gains). If not, those losses are "suspended" until you fully dispose of the property.  They, and any similar losses, go on different forms than a regular capital loss.

I would expect that you would indeed get a final K-1, but maybe not. If any case you would mark it in TT as "final" so it doesn't show up in future years and so maybe any last year calculations are made.

If you use Desktop Turbotax, take a look at your existing K-1 form for the activity. It will be Section A on page three, giving you the history of suspended and allowed passive losses. Then look at K-1P Additional Info 2. You get to that by clicking on the "quickzoom" box in the "final K-1" area.  The proper way is through the interview somewhere.

[h86those7taxes84ever]

Thank you so much for your thoughtful response.  I had to act 2 weeks ago and decided to liquidate.  The partner indicated I will be receiving a final K1 showing a $1 liquidation price. In conversation with them, they also provide sufficient evidence for me to believe I will get nothing back in the long run - so I might as well take the loss in the  2025 tax year.