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Transferring Capital Due to a Change in Ownership for a Partnership

SOLVEDby IntuitLacerte Tax29Updated July 19, 2022

If you are preparing a Partnership (1065) return where a partner has left the organization and you want to show a zero balance for their ending capital account on the K-1:

In Screen 28, Schedule M-2 (Capital Account), follow the steps below:

  1. Hold down Ctrl+E in, Other increases (+) (Ctrl+E)
  2. Enter a Description. Note:  A Description is required to specially allocate the amount to partners (discussed later).
  3. Enter the Amount. Tip: If you are trying to zero out the ending capital account for a departing partner, this amount should be equal to the ending capital account balance on the Partner's K-1.
  4. Hold down Ctrl+E in, Other decreases (+) (Ctrl+E).
  5. Enter a Description. Note: A Description is required to specially allocate the amount to partners (discussed later).
  6. Enter the Amount. Tip: If you are trying to zero out the ending capital account for a departing partner, this amount should be equal to the ending capital account balance on the Partner's K-1.

Next, follow the steps below in Screen 29, Special Allocations:

  1. Select on the + next to the Capital Account folder from the left navigation panel
  2. Select on the + next to the Other increases folder from the left navigation panel
  3. Select on the Description from the left navigation panel (this should be the Description you entered on Screen 28)
  4. Allocate the increases to the Partners receiving the capital under the Allocation Amount column After you've allocated the full amount of "Other increases" to the existing partners, continue to the next step.
  5. Select on the + next to the Other decreases folder from the left navigation panel
  6. Select on the Description from the left navigation panel (this should be the Description you entered on Screen 28).
  7. Allocate the decreases to the Partners selling/departing under the Allocation Amount columnTip:  The full amount of decreases should be entered for a departing partner.

The departing partner's capital account on Form K-1 should reflect "0.00" and the remaining partner's capital account should increase by the amount entered on Screen 29, Special Allocation.

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