Final K-1 partnership

[julianz-]

I received a final K-1 on a real estate partnership and need to understand better how to enter the relevant numbers in TT.  The K-1shows a net loss in box 2 of -2,034 and a Net section loss of -3,465. The Partner's Capital Account Analysis also shows a "Beginning capital account" of 13,868 and "Capital contributed during the year" of -8,370.  When entering information into TuboTax Desktop, I tell TT this was a complete disposition and that this was a "Liquidated Partnership interest".  It then asks me to put in the partnership basis. I do not have all of my K-1s going back to when I first joined this partnership so my first question is can I reasonably use the "Beginning Capital account amount" shown in box L of the final K-1 as the "partnership basis" or should I use the "Capital contributed during the year"?  If I put the larger "Beginning Capital account" amount this seems to double count the net loss and next section amounts  in the Total that appears in Section A of my resulting Schedule K-1 (form 1065) in TT.  Basically, I lost quite a lot of money on this partnership and want to make sure I can fully claim the loss on my taxes but it's very unclear how to do this.

I have read a couple of other posts on final K-1s but did not see the information I need to resolve my question.

[Mike9241]

we can't tell you. schedule L may or may not reflect your tax basis.  can you call the preparer to find out and also why the negative capital contributed. it's unusual to have negative capital contributed.  that could be just a plug to zero out your capital.  especially if you did not receive a cash distribution of the $8370 that would get reported in box 19 and withdrawals and distributions on schedule L. are there amounts on schedule L?  

if you can't get answers you'll have to use your own judgment.

if you didn't get the $8370, that may represent a writeoff of non-deductible items by the partnership which may entitle you to a capital loss in that amount. 

[julianz-]

There was a loan on the rental property that went into foreclosure. I assume the $8370 was absorbed by the foreclosure process. Should I ask? Is that unusual? I did not receive this sum anyway. Where exactly do I enter this as a loss in TT ? 

[julianz-]

There was a loan on the rental property that went into foreclosure. I assume the $8370 was absorbed by the foreclosure process. Should I ask? Is that unusual? I did not receive this sum anyway. Where exactly do I enter this as a loss in TT ? 

[PatriciaV]

On your Schedule K-1 Section L, is the negative number listed as Capital contributed during the year or as Other increase (decrease)? Is there information in Section K for Partner's share of liabilities? This is where the foreclosed note should be reported.

If you have entered all the information from the K-1 accurately, you may benefit from following Champ Mike9241's advise to contact the company that prepared the K-1 for more information on what created a negative capital contribution and help entering the information on your tax return.

Because you invested a lot of money in this partnership and expect a tax benefit from the loss, you should take the time to calculate your adjusted basis. The IRS provides a worksheet for the current year on page 3 of the Instructions for Schedule K-1 (Form 1065). Since the required method for reporting a partner's basis changed in 2020, you can use that K-1 to begin. Sometimes the capital balance reported by the partnership is the same as your basis, but often this is not the case.

[julianz-]

Many thanks for your reply.  There are two negative numbers in my Schedule K Section L. The first is listed as "Capital contributed during the year" and  the second as "Current year net income." What is the difference between these two? My feeling is that I should be able to take a deduction for both. After all, the whole amount that was in my capital account was wiped out in the last year.  I guess that assumes that my tax basis was in sync with the capital amount but I don't see anything that might have caused them to become different. These Schedule-Ks have always been pretty simple reporting either some real estate income or loss and not much else. Can you explain what might cause these numbers to move apart? I will, at any rate, attempt to fill out the worksheet from Form 1065 you cited.

In answer to your other question, in Section K the only number that appears is for "Qualified nonrecourse financing." There is nothing else and nothing specifically mentioning a foreclosure amount. 

[PatriciaV]

Capital Contributions are rarely reported as negative numbers, as this reflects cash or property that you contributed to the partnership. Current Year Income can be negative, of course, if there was a loss for the year (less income than expenses).

I understand that your entire investment was liquidated, but the capital loss you can report is directly related to your actual adjusted basis. Completing the worksheet is necessary to determine your basis.

Basically, your adjusted basis is the total of: 

1. Capital Contributions (cash or property you invested) 
2. plus or minus Allocated Income since inception (which can be different from the K-1)
3. minus Distributions (cash or property paid back to you) 
4. plus or minus Allocated Debt (qualified resource financing on the K-1).

The difference between your basis and what the partnership records can be due to several factors, mostly in the allocation of income and debt. For example, tax exempt income is recorded by the partner but not the partnership. You'll see other factors on the IRS worksheet.

Bottom line: The income (or loss) from Schedule K-1 is reported on your tax return in whatever category is appropriate (ordinary, rental, portfolio, etc.). The gain or loss from the liquidation is reported as a capital gain/loss, which is taxed differently from the income/loss from the K-1. This is where you receive the benefit from the liquidation (if you can consider a loss as a benefit).