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How do I report the buyout of a partner and addition of a partner in Form 1065?

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Level 4

An existing partner and a new partner have bought out a partner on 8/1/19. I entered each partner's profit/loss and ownership %'s on the K-1 Worksheet and entered the Weighted Average Date Information and the Weighted Average Computation for each partner.

The existing partner paid the exiting partner $39,200 to increase his ownership from 50% to 80%. The new partner is paying installment payments totaling $37,200 to the partner who is leaving.

The allocated profit amount appears correct on each partner's K-1. However, after each partner's draws are reported, the exiting partner still has an ending capital account and basis for $21K.

How do I report the change in ownership so that the exiting partner has no basis and the other two partners get credit for the amount they paid to the exiting partner?

The company's QB information doesn't report the amounts the two partners paid to the exiting partner since those payments were made to the exiting partner. How do I report the remaining two partners' capital account in PS to give them credit for purchasing the exiting partner's share?

Does the capital account on the balance sheet remain the same, that is $21K for the old partner split between the remaining partners? How does the difference between what the remaining partners paid vs. the exiting partner's $21K capital balance get handled? Is this difference considered outside basis for the remaining partners? If so, is there a way in PS to track that?

Thank you for your help.

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Level 15

Other decrease in capital for departing partner. Other increase in capital for the 2 partners who bought the departing partner's interest.


ex-AllStar

View solution in original post

5 Replies 5
Level 15

Other decrease in capital for departing partner. Other increase in capital for the 2 partners who bought the departing partner's interest.


ex-AllStar

View solution in original post

Highlighted
Level 4

Thanks.

I finally found that information after spending a lot of time looking.

Also, if Sec. 754 is not elected then I understand the difference between the amount paid by the purchasing partners vs. the departing partner's ending capital balance is entered as "Other adjustments" in the Basis column only for each remaining partner's Sch K-1 Wks. This basically gives the remaining members additional basis but no credit for additional capital.

Is this correct?

Thanks.

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Level 15

The transaction was outside the partnership so their partnership capital account does not increase beyond what they picked up from the departing partner.


ex-AllStar
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Level 4

But their basis does, correct?

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Level 15

Ye their basis increases by the amount they paid.


ex-AllStar