How/where to report distribution in excess of basis (LLC)?

[m2489]

My adjusted basis at the end of 2016 was $979. In 2017, my net decrease (real estate loss) was $2,070. I also received a distribution of $5,000.

It's my understanding that I have to report the excess distribution, since it exceeds my basis. I've entered all the 1065 K-1 information, but I don't see my excess distribution reflected anywhere. How/where do I account for it? And is the entire amount ($5,000) taxable, since my adjusted basis is negative/zero?

Thanks in advance.

[PatriciaV · Accepted solution]

Yes, if you received a distribution that was more than your adjusted basis, you have taxable income. In most cases, this is a long-term capital gain, which is reported on Schedule D (as a sale with no basis).

To enter this, open your return and search on "investment sales," then use the jump-to link to go to the start of this section.

Choose "Everything Else" and follow the prompts to enter a description (ie: Distribution in Excess of Basis), the amount and the date you received the distribution. Continue to enter a Cost Basis of zero (because you have no remaining basis) and the date you first invested in the company. TurboTax will show a summary page that shows how this will be reported on your return.

[m2489]

Thank You, Patricia! Very helpful.

[mohumbert01]

Will it show on my K-1

[Jdaw]

The distribution will show on your K-1. However it is  your responsibility to track your basis. That will not be shown on the K-1. You need to keep track of your outside basis to know if there is a distribution in excess. 

[gdavisatx2]

Thank you, Patricia. But, I have an additional related question. §731(a)(1) says that "gain shall not be recognized to such partner, except to the extent that any money distributed exceeds the adjusted basis of such partner’s interest in the partnership immediately before the distribution..." I am a non-manager member of an LLC taxed as a partnership. How would I know what the basis of my partnership interest is immediately before each distribution (there were five distributions in 2021)? I couldn't find anything in the regulations that addressed that.

[PatriciaV]

Unless there was a major income event during the year that would define your basis at that point, you would normally calculate your ending basis at year end, then subtract the total distributions. The company that provided the K-1 may be able to help you with the timing of income during the year, which might be useful.

If you've owned this LLC for more than a year, you should have been keeping track of your "outside" basis each year. This isn't reported by the LLC so you need to use your own records.

For info on how to determine your basis at a point in time, see IRS Pub 541 Partnership Distributions and Partnership Adjusted Basis.