Partnership has 3 partners.  All owned 33.33% of partnership.  Partner 3 leaves the partnership.    $490, K goes to the 3rd partner as the payout when they leave the partnership.   (Which is 1/3 of FMV of Real Estate in the partnership) There is a $435K loan taken out under the partnerships name.     Partner 1 contributes $27,500.00   Partner 2 also contributes $27,500.  These 3 items come up with the $490K to pay the 3rd partner when they leave.   

I am completing the tax return.   How does this transaction translate onto the tax return?    Remaining 2 partners now own it 50/50.