I'm part of a LLC- 2020 the partnership "redeemed" my portion/units; so not sold or liquidated. How do I enter an LLC redemption?

[DavidD66]

If the LLC paid you, and you surrendered your ownership interest in the LLC, report it as a sale.

[Rick19744 · Accepted solution]

There are a number of items you will need to handle in this final year:

1. A redemption of your units, as already noted, should just be treated as a sale.  Essentially, the LLC is purchasing your units.
2. You should receive a final K-1.  You will enter this into TT just as you have done in the past.
3. Hopefully you have maintained a tax basis schedule of your investment.  You will need this to determine your overall gain or loss on this investment.
4. Update your tax basis schedule for the applicable items on your final K-1.
5. Now you need to determine your overall gain or loss.  This is done by subtracting your tax basis from the redemption proceeds you received.  Example:  if your tax basis is $2,500 and you received $3,000, then you will have an overall gain of $500.  If your tax basis is $2,500 and you received $2,250, then you will have an overall loss of $250.
6. One twist here is that you should be notified by the LLC what your share of any "hot assets" are; Section 751 property (should be included on final K-1 or some other manner).  If you were not informed of your share of Section 751 property, you should ask.
7. Taking item 6 into consideration may change the character of the overall gain or loss as discussed in item 5 above.  Example:  if your share of Section 751 property is $400, then based on the facts in item 5, you would report $400 as ordinary income and $100 of capital gain (still reporting the same overall $500 gain).  For the loss example in item 5, if you had the same $400 of Section 751, you would report the $400 as ordinary income and then report $650 as a capital loss (to arrive at the same overall loss of $250).
8. So depending on your facts and $$ amounts, you may want to consult with a tax professional to arrive at the correct overall gain or loss and appropriate character reporting.