Final K-1( Form 1065) disposition

[BJ9]

I invested in a real estate limited partnership (not a PTP). The partnership was basically a group of individual investors that created a fund that bought and sold property (land), housing developments and rental income. The partnership sold all of the properties in the fund and is ending the partnership fund.   This partnership fund will now no longer exist.  In TurboTax I can check one of four boxes; No entry, Complete Disposition, Disposition not via a sale, Sold and receives payments. Which box should be checked?

[tagteam · Accepted solution]

If you select any option other than No entry or Disposition not via a sale, you will be prompted to enter a sales price (which is apparently inapplicable).

[gustj012]

I have a similar situation (received a final K-1 1065 from a partnership), which reports final earnings/expenses from 2020 tax year.  In 2020 the partnership management sold off all remaining assets, effectively liquidating the business, and this K-1 reflects the final reporting of gains and losses attributable to partners based on their relative ownership %.  There was no independent sale by me as a partner to sell to sell my portion of the partnership to a third party, therefore no sale date/sales price to report.  Therefore initially I agree that in the TT program I need to fill the radio button for No Entry.  (the option for Disposition not via sale triggers a screen to enter purchase date & sale date)!   However, when using the "no entry" TT does not record that the K-1 is a final K-1 (based on viewing the K-1 in forms view).  And that seems incorrect.  But if I manually check the " final" box in forms view, then go back to step-step, including running Smart Check....smart check then notes an error where it is looking for information about disposition as a sale, which is also incorrect.  Catch-22???

[karinm1971]

Have you solved this? I have a similar situation.

[kbeckett6]

Same problem!  Any resolution??

[kbeckett6]

I spent over an hour on this, then an hour with support.  The support process was pretty terrible, and in the end gave me the same workaround I came up with on my own:  Do NOT check the "Final K-1" box even though it IS a Final K-1.  The IRS will get the Final K-1 from the Partnership, so you SHOULD be OK.  Probably the program will then import the K-1 the following year, but you can just delete it.  Probably you won't run into any problems, and your taxes owed will probably not be affected (my understanding is that the Final in some cases forces some resolution of carried over losses, etc... but probably the K-1 as prepared will be accurate).   BUT, there's no question this is a horrible bug in the software.  The worst thing was that despite this being an obvious and horrible BUG, it was obvious that the support person had no intention whatsoever of reporting it so that it might be fixed some day.  For the 1 in 1,000 people in the future who suffer lost time and grief due to this bug:  Congratulations on finding this message!  It probably won't help, but at the very least you can stop searching for a solution and for God's sake don't try to report it to Intuit - you'll be stonewalled for certain, and you'll never get those precious hours of your life back.

[jsonp]

so are you saying select No entry or Disposition not via a sale?

Not know much but just reading Complete Disposition or Sold and receives payments also make sense to me, everything is passthrough. Even though i didn't sell the property but the business sell the property is that the same?

[tkj99]

I would say complete disposition. This would assume no property remains and all remaining assets (cash) have been distributed to the former LLC members. The K-1's should show any gains and losses from the disposal of the investment properties.   

[karinm1971]

Yes, if the partnership sold the property that is considered you selling your property for tax purposes.

Karin

[karinm1971]

I would just add that, although yes the final K-1 will show gain/losses from disposal of the investment, you still need to figure your actual gain/loss yourself by subtracting the adjusted basis (that you've been tracking year by year) from the sale proceeds.

The partnership people who issue the K-1 won't know what your adjusted basis is (necessarily), which is what determines your tax liability from the sale.

Karin

[jsonp]

problem with select Complete Disposition is how do you know ?

- start date (or purchase date)

- end date ( date sold property)

- purchase price (assuming that the price you invest in initially

- sold price 

hope someone with experience doing this can answer

[karinm1971]

The start date is the date you invested, and end date is the date the partnership sold the investment. Purchase price, yes, your investment amount. The sale price I believe is the amount for "withdrawals and distributions," in a panel on the left side of the K-1, which is what brings your ending capital account to zero.

Note that I am not a tax expert and am just someone who's been doing their spouse's taxes for several years, and he has/had several of these partnerships over that time.

Karin

[AliciaP1]

It depends on what you are actually trying to dispose of and what form you are reporting.  If a partnership sold a property and you are filing the Form 1065, you need to enter the sale details.  If the partnership sold a property and you are a partner, simply enter the information from your Schedule K-1 you received.  If you sold your partnership interest in the partnership, you will enter the details from your transaction to sell the ownership.

@jsonp 

[jsonp]

@karinm1971 This is helpful. 

[mazink]

@AliciaP1 

If you select "No Entry" the K-1 is not marked as Final, which is incorrect. TT when it sees the Final K-1 marked, it allows Passive loss which were disallowed in previous years to be taken, which is correct, but TT asks for sale date/price and purchase price/data, and this is not correct. If you do not mark final K-1, next year you will have to delete the imported K-1, and this will also delete any carryover passive loss which were disallowed in previous year, which is incorrect.

If you mark disposition not VIA sale, you are not asked for sale/purchase price, but TT create a K1P additional Info. , and in Part II (disposition of Partnership Interest" checks box 1b , i.e. "gifted partnership", which is incorrect.

If you  mark complete disposition, and mark it as liquidated partnership, it ask for Sale information, and based  on this creates an entry in schedule D, which is incorrect. In this case it also allow disallowed passive losses which were carried forward.

I discussed this with a CPA, and  they told me that one should mark FINAL K-1, and complete disposition, and the answer for "Tell us about your sale" should be liquidated partnership Interest. They indicated TT is not correct, and should not ask for sale date/price purchase data/price, as all distribution and losses have been taken care in the K-1.