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## Partner Basis vs Capital Account on Liquidation

Level 2

Hoping to get some thoughts from those who deal with these more than me.  Most of the K-1s and partnerships I deal with are small and simple.

I have a client who is a partner of a partnership that ceased operations in 2018 and was issued a final K-1.  He did not receive anything from the partnership when it closed.

The final K-1 lists ordinary loss of \$2,153 and Section 1231 Gain of \$279,500.

Beginning of year basis is \$491,013 + 1231 gain of \$279,500 - decreased of share of liabilities of \$653,478 - Loss of \$2,153 = \$114,882

However, the K-1 lists beginning capital account of -\$162,465 + current year increases of \$372,910 = \$210,445.  The difference between the basis and capital is \$95,563 which is also the difference between the current year increase and net loss/gain.

I know that the capital account and the basis account are not the same thing, especially since the basis account can't go below zero, but I'm wondering what the \$95k would be and if it is something that would affect basis.  Since whatever his basis ends up being is going to become a capital loss to help offset the 1231 gain, the difference is substantial.  Thoughts?  Am I looking at this right?

Thanks!

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Level 15

It sounds like you have the correct basis 114,882

Does his K-1 have an ending capital account of -0-? That \$95K is most likely whatever was needed to zero out the capital account. Capital accounts on K-1s do not equal basis.

ex-AllStar
6 Replies 6
Level 15

It sounds like you have the correct basis 114,882

Does his K-1 have an ending capital account of -0-? That \$95K is most likely whatever was needed to zero out the capital account. Capital accounts on K-1s do not equal basis.

ex-AllStar
Level 2
Thanks for responding.  The ending capital account on the K-1 shows \$210,445.
Level 2
So you would ignore the \$95K since it's probably a closing entry anyway?  I would just hate to be wrong on such a large amount if it could help them.
Level 15
If you have the info since inception to calculate your client's basis and have done so, I would use your numbers.

ex-AllStar
Level 2
That's what I'm going to do then.  Thanks again!
Level 15
You're welcome

ex-AllStar