Transferring ownership to other members of LLC - TT Business

[bchakka11]

I am part of a 3 member LLC in Texas. In 2023, the other two members bought me out equally. The partnership will now move from 33.33 x 3 members to 50 x 2 members. I am using Turbo Tax 2023. The LLC itself doesn't have much assets. What the other two members paid me was little more than ($3k) my capital account balance as for 2022. I could not show this as a gain for corporation - as it is my personal capital gain. At the end of 2023, my capital account should be zero and my K1 should show gain of $3k. I am not finding a way to input $3k gain in my K1 as a capital gains. I want to add $3k to the Section L, other increase line item and also show $3k in line 9a of K1. 

Is there a over-ride function that I can type in these values into my K1 (not the others)?

How do you suggest I handle this in TT 2023 Business?

Thanks a lot for the input in advance. 

[RobertB4444]

You shouldn't be entering your sale and the gain on it into the K-1s at all.  That's a personal gain for your personal return.  You should enter your sale of the S-corp shares into the schedule D section of your personal return showing the full purchase price you received and the full basis that is deducted so you have a net gain of $3000 on your personal return to pay capital gains tax on.

The K-1 should only reflect your share of the earnings through the date of the year that you sold your interest.  If should be marked 'final K-1' and reflect a prorated percentage of ownership based on the date of transfer.  The same is true of your two (former) partners who should be absorbing your shares on the K-1s.  The sale itself is just a sale of stock for which you did not receive a 1099-B.

@bchakka11 

[bchakka11]

Thank you @RobertB4444 .

This is not a S-corporation. This is sale/transfer of share of LLC. So, the other two partners paid $10k each into the LLC and their capital accounts went from $17k to $27k (for each partner). My K1 from LLC shows that my capital account is zero at the end (Start $17k, basis adjustment $3k, distribution of $20k). 

Is the process same if it is LLC vs. S-corp. If I want to put in the Schedule-D, what kind of record will I have to show basis and sale price?

Your response is much appreciated. 

[SusanY1]

Can you clarify for us what tax form your LLC files?  If it isn't an S-corp did it file as a partnership (1065)? 

[bchakka11]

@SusanY1 Thanks for the reply. We file Form 1065 and partners get Schedule K1 of 1065. This would be my last K1 from the entity. 

[PatriciaV]

RobertB4444 is correct. If you sold your interest in the LLC to a third party (or another partner), that transaction occurred outside the LLC. In other words, you report the sale on your personal return.

However, the transaction you described was not a sale. Two partners made capital contributions that increased their basis in the LLC. You received a disproportionate distribution equal to their contributions that may have violated your operating agreement. It appears the basis adjustment was used to bring your capital balance to zero - was this allocated income/loss?

The correct way for this buyout to occur was for the other partners to pay you directly. Your capital balance would be adjusted to zero, allocating half to each of the purchasers. No gain or loss would be reported by the LLC.

I highly recommend you contact a local professional to review this transaction in light of your operating agreement and IRS rules, and advise you on correcting and/or reporting the change in ownership.