Sale of LLC (taxed as Scorp) Membership Interest

[cpczyz]

In 2020 I sold my interest in an LLC taxed as an S-corp.  How do I enter this in Turbo Tax?

I was 50% owner, and sold all of it.  

[Carl]

You "should" have received a "final" K-1 showing your disposition of your interest in the S-Corp. Did you?

[DaveF1006]

It depends on the K1 also. To clarify did you receive a K1 for a partnership (1065) or an S-Corp (1120S)?

[cpczyz]

I received an K1 (1120s) but it just reflects the business  income  for the portion of the year of ownership (12.5% of year).

[DaveF1006]

It depends. This would considered a sale of a capital asset and would be reported in this manner. In this example, the membership interest is reported like a stock in this instance because it is considered a share or a piece of the S-Corp.

1. Log into or open Turbo Tax
2. Go to federal>wages and income>investment income>stocks, mutual funds, bonds, other
3. Select No you did not get a 1099-B for this transaction
4. Next screen will ask the sale information for your membership interest such as description, date sold, date acquired, sales proceeds, cost (meaning what you paid for it) Holding period. This determines long term or short term capital gains.  If you owned the membership more than one year, it's long term.
5. Next screen you can skip unless you paid federal withholding tax or if those other items apply.
6. Then finish out the section to complete the reporting.
    

[Brilliant]

I was reading your posting. I have the following situation. I am trying to find the actual law or revenue ruling to make sure that I am correct. Here is the issue. I own a franchise. It is a California LLC. I am the sole member. I have it taxed as an S-Corp. Now another franchisee wants to buy the business. I want the lowest tax rate on the sale. LLC's can do asset sales. Corporation can do stock sales (Entity Sales). Asset Sale is taxed at ordinary income. Entity sale is taxed at long term capitals gains, (Big Savings). But, what is the "rule" when an LLC that has been taxed as an S-Corp is sold? Entity, Asset, Combination of Both? I what the agreement with the correct words so I do not get taxed ordinary income taxes, but I just do not know if I can do it as an Entity because there is NO Stock. I would like accept an answer and any other references that I can read to make sure I understand my liabilities. Thanks in advance

[Mike9241]

consult a tax lawyer knowledgeable in California LLC/S-Corp taxability. how Ca would treat the sale and how the IRS would treat it may be different. also, realize that what you want all capital gain is likely incompatible with the purchaser's desire to be able to write off any premium paid as fast as possible.

my understanding, nothing authoritative provided, is if you sell your interest as opposed to the underlying assets you get capital gain treatment for the difference between the sales price and your tax basis. the Purchase gets a basis in the LLC of the purchase price. The excess of the price paid over the FMV can not be allocated to the assets nor amortized as goodwill.