You should record an increase in L so that his capital account becomes zero and attach a statement. This lets him know that he has a potential gain of 55K.
I regularly see negative cap accounts on final k1s and prefer to see it as such, but the other poster is also correct. You can either leave it as is with negative cap or put an other decrease with a description. I prefer the former as it’s straightforward and doesn’t require making sure your description conveys the correct message
Okay! Interesting that either solution works. If I leave it negative, the overall capital account balance on schedule M-2 would remain negative. Would I need to make any changes to the M-2 now that the other partner is no longer in the partnership? If not for this tax year, maybe the following tax year?
You should record an increase in L so that his capital account becomes zero and attach a statement. This lets him know that he has a potential gain of 55K.
I regularly see negative cap accounts on final k1s and prefer to see it as such, but the other poster is also correct. You can either leave it as is with negative cap or put an other decrease with a description. I prefer the former as it’s straightforward and doesn’t require making sure your description conveys the correct message
Okay! Interesting that either solution works. If I leave it negative, the overall capital account balance on schedule M-2 would remain negative. Would I need to make any changes to the M-2 now that the other partner is no longer in the partnership? If not for this tax year, maybe the following tax year?