topic K1 and Disolution of limited partnership in Business & farm

K1 and Disolution of limited partnership

AJ80 — Mon, 09 Mar 2026 05:20:24 GMT

About 20 years ago I was gifted shares in a limited partnership and in 2021 that limited partnership ended (was dissolved).

In the final K1...

* I have values filled out in section II.L (Partner’s Capital Account Analysis). Beginning is a small value, and ending is 0.

* My final distribution is in section III, item 19A

* I have values in part III in these fields: 1, 9c, 10, 17a, 17b, 18c, 19a, 20ag, 20n, 20z

My general question is how to enter this K1 into TurboTax including the ending of the limited partnership. My guess (with a lot of questions!) is…

In “Describe the Partnership” I selected “This partnership ended in 2021”
In “Describe Partnership Disposal” I selected “Complete disposition.” – Was this correct?
In “Tell Us about your sale?” I wasn’t sure so selected “Sold Partnership Interest” – Is that correct?
In “Enter Sale Information”…

I put “Sale Price” as my last distribution from 19A -- ???
Selling expense – 0
Partnership basis – 0 – should I have put the small amount from the beginning of the year in section K1 II.L?
Ordinary gain – I put the value from the K1 part III, item 1 – is that correct?
1250 gain – I put the value from the K1 part III, item 9c – is that correct? Should it be the value from item 10 instead?

Re: K1 and Disolution of limited partnership

Anonymous_ — Mon, 21 Feb 2022 23:47:24 GMT

I will page @Rick19744 but you might want to read through the thread at the link below.

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/how-i-report-the-sale-of-mlp-shares-in-turbo-tax-i-sold-all-shares/00/776624

Re: K1 and Disolution of limited partnership

Rick19744 — Tue, 22 Feb 2022 00:44:29 GMT

Actually you have done a pretty good job in your attempt, but I will add some commentary:

While this may not be what you want to hear, but when you were gifted the interest 20 years ago, you should have been provided with the tax basis of that interest at the time of gift.
- Hopefully you have this, as if you don't, you really don't have complete information to determine your overall gain or loss.
The information on the K-1 Part II line L is tax capital. This is generally, most of the time, not the same as your outside tax basis. This reporting was just recently mandated and people think this is their basis in the investment and it's not. This represents each partners tax basis of the assets in the partnership.
Your selling price noted is correct; your liquidating distribution
If your K-1 does not have any footnote regarding ordinary gain, leave this blank. Part III line 1 has already been reported and should adjust your tax basis; which we haven't determined if you have this schedule.
Section 1250 gain is correct - line 9c
I think your other responses to the TT questions are good
The real key here is the question of your partnership basis. Let me know if you either have this or don't. If you don't, how many past year K-1's do you have?
- Or is this just not a significant number that it's not worth the effort of trying to determine a more accurate partnership tax basis?

Re: K1 and Disolution of limited partnership

AJ80 — Tue, 22 Feb 2022 00:54:19 GMT

Hi Rick19744,

Thanks so much for the assistance!

I was not provided with the tax basis 20 years ago. I do have every tax return and K1 since then. Will that help?

Re: K1 and Disolution of limited partnership

ZoltanB45 — Tue, 22 Feb 2022 20:00:57 GMT

Just enter the amount of equity you still had in the business at the time of selling your share. That includes your share of the profits of the final year which were not distributed.

Look at the beginning capital account of the final return, add any contributions, deduct the distributions and add your share of the profits during the year (or deduct your share of the losses). The only reason I laid it out like this is, because you might have a zero ending capital account balance on your K1. Normally you would just take the ending capital. This is not a valuation by any means, but it will be good enough in recording the gain or loss on the sale.

Re: K1 and Disolution of limited partnership

Rick19744 — Wed, 23 Feb 2022 00:40:24 GMT

I disagree with @ZoltanB45 .

Most balance sheets maintained by a partnership are on a GAAP or book basis.

While the reporting of the capital account changed last year, to be a tax capital account, this is not the same as your outside tax basis.

If you have the K-1 from every year (kudos to you for having this), then I suggest the following:

Hopefully you understand using excel good enough to provide assistance in determining your tax basis
Keep in mind, this most likely is not completely accurate, since you were not provided what your gifted tax basis was at that time; but close enough. The best information you have available.
Find your initial K-1. Hopefully there is a figure on the increase/decrease line (what is now Line L on the K-1) that reflects transferred basis. This will be your starting point. I know what I just said, but that is all you have.
Next, for each year K-1, including your initial, adjust your tax basis for the applicable lines in Part III
See page 3 of the K-1 instructions for some help; link below
https://www.irs.gov/pub/irs-pdf/i1065sk1.pdf
Once you have completed the worksheet for every year, adjust for your final K-1 for all items EXCEPT for any distributions on the final K-1.
When entering the information for the sale (liquidation); your final distribution will be the sales price, your tax basis which you just calculated will be your cost.
TT will then compute your overall gain or loss

Re: K1 and Disolution of limited partnership

AJ80 — Wed, 02 Mar 2022 00:20:40 GMT

Thanks @Rick19744 ! Sorry for the slow reply. (I was traveling.)

My thought after mulling this over a bit is that since I was gifted the share of the limited partnership my own cost basis is zero (which of course isn't good tax-wise). Think that's correct?

Re: K1 and Disolution of limited partnership

Rick19744 — Wed, 02 Mar 2022 00:40:47 GMT

@AJ80 if you don't have any support for a beginning "gifted" basis, then unfortunately that would be your starting point.

However, you most likely don't have zero basis after factoring in all the K-1activity since the gift.

If this was a fairly simple partnership, then it shouldn't take too long to put the appropriate K-1 amounts from each year into excel to arrive at your final cost basis.

Re: K1 and Disolution of limited partnership

AJ80 — Sat, 05 Mar 2022 18:55:35 GMT

Hi @Rick19744 - I'm pretty good with Excel so I (naively!) thought this would be straightforward.

I've read through the worksheet instructions a few times on page 3 of https://www.irs.gov/pub/irs-pdf/i1065sk1.pdf .

Alas they don't tell you which K1 fields to use to calculate each row in the worksheet. So, I don't think a non-accountant like me can realistically interpret the instructions. It's too bad because I am betting that these entries could be derived from the K1 given the formulas. Maybe this would be a good TurboTax enhancement for the future-- to create/maintain the cost basis worksheet for the investment in a partnership.

On any account I want to say thank you for your help nonetheless!

Re: K1 and Disolution of limited partnership

Rick19744 — Sat, 05 Mar 2022 19:36:22 GMT

@AJ80 the world of tax is complicated regardless of the size of an entity structure.

Obviously I don't know what fields in general are populated on your K-1's, but in general:

You will start with initial contribution which we determined will be zero for you based on previous comments.
Then look at each applicable box and determine how that impacts your tax return.
- I recognize this is sometimes easier said than done for those that use TT and everything just works as it should; or that is the goal
- But in general, fields with income, increase your basis
- Same for expense / deductions, those will decrease your basis
- Any other contributions that occurred during the past will increase your basis
- Any distributions over the years will decrease your basis
So using Excel, have the years at the top, K-1 fields in Part III down the side
- box 1 income / loss
- box 2 real estate income / loss
- box 5 interest income
- box 18 (current year K-1) tax-exempt income / expenses impact your tax basis as well
- other typical boxes 6,8,9,10,11,12,13,19
- remember don't decrease your basis by the distributions on your final K-1. You will use this for the sales price as noted previously.
Take a shot at it and see where you come up. Getting some professional help this time of year will most likely be next to impossible, meaning a possible extension if you aren't comfortable with where your tax basis ends up.

Re: K1 and Disolution of limited partnership

AJ80 — Sat, 05 Mar 2022 20:14:24 GMT

Thanks @Rick19744

I may take another run at the basis in a while.

I have a question on the numbers I’ve entered so far.

From the K1

1 = -5137
9c = 19,076
10 = 41,576
19A = 37, 507
20AG = 44, 571

And for now I’ve used section L “beginning capital account” as the cost basis = 1,072

Here is what TT created as my Schedule D.

Should I be taxed on both of these capital gains??

The investment gain = 37,507 – 1,072 = 36,435
From K1 line 10 "new section 1231" = 41,576

Is TT doing this correctly? It seems like its duplicating the capital gains.

Re: K1 and Disolution of limited partnership

Rick19744 — Sat, 05 Mar 2022 21:46:06 GMT

The problem you have here, is that you aren't adjusting your tax basis (cost in column e) for the current year K-1 impact.

If you use the beginning of the year figure, which we don't know is accurate, but assume it is, then:

you need to subtract the 5,137 loss (box 1)
add the section 1231 gain of $41,576 (box 10)
this gives you a tax basis (cost basis column e) of $37,511
Using this figure gives you a small loss of $4

You essentially were getting double taxed as you were not adjusting your tax basis for the current year K-1 line items.

Re: K1 and Disolution of limited partnership

AJ80 — Sat, 05 Mar 2022 23:16:25 GMT

Thank you @Rick19744 !

Re: K1 and Disolution of limited partnership

Rick19744 — Sat, 05 Mar 2022 23:43:57 GMT

Welcome

Re: K1 and Disolution of limited partnership

plawlor78 — Wed, 09 Apr 2025 05:36:32 GMT

Hi @Rick19744,

Your answers are very clear and helped me with my federal calculations for my final K-1 (real estate). I'm now doing the state returns since I have income (Montana and Oregon -- I am a resident of California). I realize that I most likely have not been doing my state returns correctly. I have not been filing state taxes for Montana and Oregon, primarily because I have had losses and thought that I could just carry them forward until I eventually had gains. I was under the impression that I could accumulate losses similar to federal. From reading other threads and some of the Oregon non-resident filing rules, it seems that I was supposed to file taxes even for years when I had losses so that I could use the carry forward losses. Is that true? If it is, what are my options? These real estate K-1s generally have big losses in the early years that I definitely want to use.

Re: K1 and Disolution of limited partnership

Rick19744 — Wed, 09 Apr 2025 14:34:46 GMT

Here are my comments @plawlor78 :

I have a number of questions and unknown facts and a forum such as this is not really conducive to address a back and forth in most matters
I don't know your definition of "big losses", but based on that terminology, I recommend you meet with a tax professional after April 15th......doubtful you can get someone's attention before then.
You should bring all your K-1's to the meeting. I would also think you should have separate K-1's for the Oregon and Montana allocations. I don't know the allocation of the losses nor the current year income.
Hopefully you know your tax basis for this investment and there most likely are differences between the federal and states.
Another issue is that the statute of limitations has not started (tolled) when you haven't filed a tax return and should have. Not sure how long this has been going on, but this may add to the murkiness of this matter. If it has been awhile, to hopefully a lessen late filing penalties, the tax professional could attempt to start a voluntary disclosure with Oregon and Montana. They can begin this process anonymously to see if the state is open to doing so. Since there is activity in those states, it most likely is just a matter of time before you receive a letter from either or both states.
I recommend filing your usual returns, meet with a tax profession and address Oregon and Montana. You most likely will need to amend California at some point.

Re: K1 and Disolution of limited partnership

plawlor78 — Wed, 09 Apr 2025 16:29:44 GMT

Hi @rick. Thanks for the reply and guidance.

Agreed that this forum is not conducive for complicated conversations. If there is any specific other information that you want, then let me know.
By big loss, I mean that the rental loss in the first year of operation was about equal to my entire initial investment.
Yes, I have been receiving federal K-1s as well as the state K-1s for several years. One K-1 goes back to 2017 for federal K-1s, but the state K-1s started showing up in 2019 (must have been when the partnership actually purchased the properties).
I do know the adjusted cost basis for federal (I think). I'm a bit less certain about the state's adjusted cost basis. Do you have a pointer to how to do that calculation? And keep track of it over the years?
Unfortunately, this has been going on since 2019, and I have other partnership K-1s (some with Oregon property as well). I was unaware that I needed to file in states when I had no income, only losses. On a positive note, I think if anything, I have been overpaying taxes since the partnership did withhold taxes for these nonresident states for any time I had income. I don't think that I owe any money. Would there still be any penalties?
Rather than filing my usual tax return, should I file an extension and try to meet with a tax professional to get my 2024 taxes correct?

Re: K1 and Disolution of limited partnership

Rick19744 — Wed, 09 Apr 2025 19:01:35 GMT

Follow-up to your reply:

Based on your additional facts, you should have filed Oregon and Montana (assuming the same year) since 2019.
Whether the partnership was withholding nonresident tax was one of my questions.
While you may not owe in either state due to prior losses, you may still be subject to a late filing penalty. I have not researched either of these states. Just stating what could occur.
The state tax basis will be different than the federal if a state has different depreciation allowances. Not all states follow federal, so this difference would cause a state tax basis to vary from the federal. This will impact loss allowances and any gain or loss upon disposal.
Based on the facts, you could file your federal and extend California.
I would NOT extend either Oregon or Montana. Since you haven't filed anything in the past, this may cause an issue with the voluntary disclosure request.
Don't procrastinate if you want to enter into a voluntary disclosure program as this will be disallowed if you receive any notice from the state.

Re: K1 and Disolution of limited partnership

plawlor78 — Thu, 10 Apr 2025 06:10:55 GMT

Thanks @rick for the additional answers. I agree with what you wrote, except a couple of clarifications:

For state tax basis. How would I be able to tell if the the federal and state have different depreciation allowances? Also, since the K-1 has multiple states, should the Oregon adjusted tax basis be different than the Montana tax basis (since I imagine the the investments in the states were different -- where would I see that?). Should the sum of all the state tax bases be close to equaling the federal tax basis? I'm trying to create the correct mental model in my head for how this is supposed to work.
I don't know anything about voluntary disclosure request. I did talk to one CPA briefly today, and he did recommend to file extension for Oregon and Montana. I did not bring up the voluntary disclosure request though.

I now plan to file an extension since I do not have much time before tax day and do not have an accountant (and they are all pretty much busy). I just need to figure out what to extend. I would probably extend federal as well since there is not much downside to that (even though I think that I did that correctly).

Re: K1 and Disolution of limited partnership

plawlor78 — Fri, 11 Apr 2025 02:20:24 GMT

I learned that extending federal also automatically extends each other states where I would submit taxes, so I plan to just extend federal and continue to figure this all out.