Capital Gains when closing a business

I am closing down my Limited Partnership.
The partnership consists of myself and my S-Corp
The partnership assets consists of
    Three computers
    Test equipment over 5yrs old which when new was worth maybe $3,000

    Bank Account with $25K

    Inventory worth $26K

******************************
I moved what money was left to the my S-Corp as management fees

*

have you consistently in prior years paid a management fee to the S-Corp? Is the amount reasonable for the services the S-Corp performed for the partnership?  In other words, there must be a bonafide reason for paying te S-Corp that fee.  If not, the iRS could challenge the deduction. the fee reduces your share of any profits and thus would reduce your self-employment tax.  another way to handle this is to make pro rata distributions to you and the s-corp. you can then contribute your share to the S-Corp

*************************************

Inventory which mainly consists of many small components used to manufacture products for sale.
    All manufactured inventory Items have been sold and reported
    All component item are unsellable but are on the books for approx. $26K

*

The IRS is very strict about taking write-offs for inventory. If you can't get rid of your inventory, there are 3) ways to dispose of it and claim a tax loss. You can sell it to a company that specializes in handling obsolete or overstocked merchandise. You can donate the inventory to charity and claim a write-off that way, or you can simply destroy it. The IRS may scrutinize your claims carefully, so make sure that you have records to prove your case. If you destroy your stock, for example, "before" and "after" photos might come in handy.

********************

In closing down the business
    How much can I and how do I expense or deduct my unsellable inventory? See above. By getting rid of it your ending inventory is zero. On the other hand, if you already expensed these items (not accounted for them as inventory), you're not entitled to another write-off.

******************************************************************
    The IRS website says I need to fill out a Form 1065 Schedule D "Capital Gains and Losses".

Inventory is not a capital asset so there is no capital loss on disposal if there's a loss at all. See above.

The IRS website says I need to fill out a Form 1065 Schedule D "Capital Gains and Losses".

Where did you see this?

*****************************************

The only capital gain/loss reported would be for your interest in the partnership. that assumes you have basis and upon liquidation that isn't satisfied by and equal amount of assets you received.

**************************************************************

distributions of property

Code C. Other property. Code C shows the partnership's adjusted basis of property other than money immediately before the property was distributed to you. In addition, the partnership should report the adjusted basis and FMV of each property distributed. Decrease the adjusted basis of your interest in the partnership by the amount of your basis in the distributed property. Your basis in the distributed property (other than in liquidation of your interest) is the smaller of:
• The partnership's adjusted basis immediately before the distribution, or
• The adjusted basis of your partnership interest reduced by any cash distributed in the same transaction.
If you received the property in liquidation of your interest, your basis in the distributed property is equal to the adjusted basis of your partnership interest reduced by any cash distributed in the same transaction.
(If you receive cash or property in exchange for any part of a partnership interest, the amount of the distribution attributable to your share of the partnership's unrealized receivable (this includes deprecition recapture) or inventory items results in ordinary income (see Regulations section 1.751-1(a) and Sale or Exchange of Partnership Interest, earlier).
A partner must attach a statement to their return for the tax year of the distribution if either of the following situations is applicable.
Section 732(b) basis adjustment. If the basis of distributed property in a liquidating distribution is different to the recipient partner from the basis the partnership had in the property immediately before the distribution as a result of section 732(b).  (you only have a fractional interest in the partnership but would be taking all of the

computers and test equipment. however, if the items are fully depreciated their basis would be zero) so 732 would not apply 

The statement must include the following information.
• The name and EIN of the partnership from which a distribution was received.
• The computation of the adjustment to the basis of the distributed property or properties.
• The allocation of the basis adjustment to the distributed properties in the hands of the partner

*************************************

as you can see liquidation can be a complicated matter. No mention was made of what's being done with the S-Corp. The best way to avoid possible issues with reporting for the partnership, S-Corp, and personal returns would be to consult a tax pro.

***************************************************