I have numerous questions - even insight into a single question would be useful. I am filing a 1065 for a 4 member LLC (equal ownership %'s). One member (#1) died and another member (#2) bought out the dead member's share at FMV price. The FMV price was higher for both the rental house and gas/oil producing assets.
(1) How do I properly account 'buyout of the dead member' - [handle 'internally' within LLC] was this a contribution (from #2) to the LLC with a balancing distribution (to #1) from the LLC or was this a sale (by #1, with associatedCapital Gain) and then re-purchase (by #2, with associated increase in Capital Account Tax Basis) of the assets.
(2) How do I recognize the increase in FMV on the Assets balance sheet - are 100% of the LLC assets re-valued or do 75% stay the same value and only 25% (#1's share) get increased to FMV. But any re-valuation for the Assets throw the Partners Capital Accounts out-of-balance with Assets.
(3) I assume that the IRC Section 754 election [under 743(b) IRC Section] I report/file with the IRS will also contain related info regarding the re-valuation of assets.
(4) How do I handle the House depreciation - is 75% of the House following the old depreciation schedule and 25% (#1's share) following a new schedule [i.e. old value House depreciation for the first few months and then FMV House depreciation for the remainder of the year]. But this seems to entail Form 4797 and recognizing the Capital Gain for #1's share.
(5) The individual member K-1's numbers are no longer in sync with the default of 'member ownership % * # of days / 365' - so I need to override the default. Will this trigger Errors that will dis-allow e-filing of the return?
Any help or direction would be greatly appreciated.
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Some follow-up comments:
Before we can provide some assistance, clarification is needed.
Thanks for your quick/thoughtful reply - obviously I've more research to do.
Responses:
- Yes, member #2 paid Estate of member #1 the $$ when acquiring interest
- Member #1's interest went into his Estate for a period of time
- Suspected that only Member #1's share got a step-up in basis as it was transferred to his Estate. I need to become more familiar with working/needs of 754 Election under Section 743(b).
- tell me about it (Re get complicated)
- Spreadsheet configured, post buyout, to add member #1's internal Capital Account to member #2's Capital Account
- see above about familiarity with 743(b) and it's affect on member #2's K-1
- I couldn't reconcile the 1065 Balance sheet if I changed the Assets value - wondered if I missed something
- (unless I've mis-interpreted) about the Capital Gain, I was only thinking about member #1 and fully expected the Estate tax return to reflect the step-up in asset value to FMV
- Seems inconsistent with what I've experienced, not all entries fit the default of '% own * # days / 365' times annual value (e.g. depreciation certainly doesn't, but admittedly my experience with depreciation and the 743(b) adjustment needs improvement - see 3 and 6 above)
Some follow-up comments:
Took me awhile to get familar with the reg.s of IRC Section 743(b), but thereafter the vast majority of your reponses were dead on 😉 .
However, I needed to use 'Secial Allocations' in TT to properly divided the income, expenses, royalties, etc between the various members of the LLC (the default division of schedule K info to the members K-1's didn't work, even with using the DOD of member #1 in the "Addl K-1 Info" Worksheet).
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