How to report sale of partnership?

[2Pups]

Hi,

Our LLC has 4 equal shareholders. As of 12/31/2024, two sold their shares to the remaining shareholders. How is this reflected in Schedule K-1 Part III Section J?

I read on the Partnership FAQ on www.irs.gov that a change of partnership interest of 50% or more within a 12 month period is known as a Type B termination or technical termination. It notes that a "final" return should be filed for the period prior to the change in partnership with the "Technical Termination" and "final" checkboxes marked - I cannot find where the "Technical Termination" checkbox is.

It also says a second return should be filed to reflect the "initial" return of the new partners' interests and should have the "Technical Termination" and "initial" checkboxes marked. How does this work if the transfer of partnership interest occurred 12/31/2024? Again, can't find the "Technical Termination" checkbox.

Lastly, does the exiting partners report their gain/loss on investment on Schedule K-1 Part III Item 20 as AB amount or else where on their personal tax return like Schedule D or something?

[RobertB4444]

As you enter the information about your partnership you will check the box that says there was a change in partnership interest for this year.  Then, when entering the information about each partner you will indicate that this is the final year for the two partners that are leaving and that there was a change in partnership interest for each partner.  

The date that you'll enter is 12/31/24 and you'll change each partner's interest to reflect the new partnership - zero for the two who are leaving and up to 50% each of the two who are staying.  That will adjust all of the ownership percentages going into 2025 but should have no real effect on 2024.

The sale of the partnership and the profit from it is entered on the schedule D of the partners who sold their interests.  They'll enter the amount that they received for their interests and the basis that they had in the partnership at the end of 2024 as their basis.  That basis value should transfer to the two remaining partners for the beginning of 2025 to show that the purchase was completed.  

The IRS ended the technical termination rule for all tax years beginning after December 31, 2017 with the TCJA.  So you don't need to worry about any of that.  All you have to do is change the interests within the partnership.

@2Pups 

[2Pups]

Hi,

Thank you for your response, but I am a bit confused on how to complete the Schedule K-1, Part III, Item J ending percentages. The sale of the partnership interest is effective 12/31/24, with the intent to split 2024 profits and losses equally 4-ways. Turbo Tax does not prompt me on how to complete this section of the K-1, nor does it ask what the ownership split is after the sale. If I change the ending percentage of profits or losses to 0%, the exiting members do not get any split of profits or losses. It seems I must keep the ending percentage at 25% for everyone in order to split 2024 4-ways. Is this the correct way to do it, while marking "Final" for the exiting members? Should the ending capital percentage be zero for the exiting members and 50% for each of the remaining members? Please advise asap as the deadline to file is quickly approaching.

Thank you.

[2Pups]

@RobertB4444  tagging you to ensure you see my response/post above.