Welcome back! Ask questions, get answers, and join our large community of tax professionals.
cancel
Showing results for 
Search instead for 
Did you mean: 

Sale of Partnership to another individual

Highlighted
Level 2

If a partner sells their interest in the partnership, but has a negative capital account, does the adjustment to the capital account to make it zero show as a capital gain to the partnership with a special allocation to the partner that is selling their interest?

Labels (1)
0 Cheers
6 Replies 6
Highlighted
Level 15
The sale has no impact on the partnership. The seller needs to deal with their negative capital account on their Schedule D.

ex-AllStar
Highlighted
Level 2
Which makes sense to me but what incentive does partner have to report capital gain if not reported on K1. Especially in the situation of a disgruntled partner.
0 Cheers
Highlighted
Level 15

Put a note on the K-1 along the lines of: At the time of the sale of your interest in this partnership you had a negative capital account of XXXX. This may result in taxable income to you. Consult your tax advisor. Also you're filing Form 8594 8308, right?


ex-AllStar
Highlighted
Level 2

great suggestion regarding note on K-1; thanks sjrcpa! I wasn't going to file the 8594 because I'm not doing the partners returns. This should be filed with the individuals returns correct?

0 Cheers
Highlighted
Level 15

Yes  8594 would be part of the 1040 forms to be filed. The partnership may have to file 8308.


ex-AllStar
0 Cheers
Highlighted
Level 15

I  meant Form 8308. Sorry.


ex-AllStar