That makes sense. Based on what you've said, I think it would be appropriate in this case to claim the full loss allocated to me on Sch E, but also to report the negative capital account as a capital gain on Sch D. To some degree they will offset each other.

[quote=Wnhough;31097]QUOTE]

Your 1065 would show dissolving distributions as distributions rather than a sale. Such distribution would reduce your tax basis. Ideally the balance sheet of the LLC would be zero after dissolution, however, that may not always happen due to possible non-recourse liabilities unpaid invplved. Your sch K1 should show the current year operating income/loss regardless of the equity account balances and such is reported on your1040. your K1 ?d show your ending accounts as zero or negative,in your case, or positive balance. Negative usually means you have income to report on your 1040 due to over deduction of your loss unless you have tax basis other than what is shown on your outside basis or you have not deducted the loss. Such loss recapture is determined at your level per the at-risk form 6198 attached to your 1040.

Let me ask you one more question.

One our last return (2014), our CPA did the following:

Sch K, Part III, Ln 1 (Ordinary business loss): -$5,170

Partner's capital account analysis:
Starting cap account: $6,300
Current year decrease: -$5,170
Ending cap account: $1,130

So basically the decrease in my cap account was equal to the business loss. I am using the same logic for 2015, hence why the ending cap account for the Final K-1 is negative. Is this standard practice or did our CPA do something weird?

[quote=Wnhough;31097]
QUOTE]

I guess you may have taken , say $5K more in distributions than is in your capital account of your LLC or your LLCmay have operated at a loss at one time before.. . So to review, your final capital account on the K-1 is -$5k .