I sold my 50% share of an llc to my business partner. Where do I report that income on the business taxes so it shows on my k1?

[banzjennyd]

I am doing the company taxes. I see where I enter the partnership change, but no where do I see how I report the dollar amount of the sale. Is it required? I will then do my personal taxes with the K-1. How do I report the income I received for the sale?

[Rick19744 · Accepted solution]

You complete the business return (form 1065) just as you have in the past, except you only allocate items of income / loss through the date of sale.  The LLC being taxed as a partnership ends on the date of sale as there is no longer two members.  This will be a final return for the partnership and both K-1's should reflect "final" as well.

The other member now has a single member LLC that gets reported on their 1040 Sch C.

You then update your basis schedule, compare your proceeds to the basis and then determine gain or loss.  Depending on the LLC activity and method of accounting you could have what is know as "hot assets".  This would reclass what is generally capital gain to ordinary income.

Bottom line, you do not report any of the "sale" income / gain on this final LLC return.

[banzjennyd]

That is so helpful. Now on my personal tax return where do I report the income? I actually have a loss, since o received 6000 less then I put into it. Would I report this as a loss/gain under investments?

[Rick19744]

You need to make sure you use your basis schedule when determining gain or loss....not just the difference between what you put in and what you just received.  Your basis schedule needs to be updated each year for your K-1 activity.  This is extremely important.

If you are comfortable that your loss is correct, then this gets reported on Form 8949 which will then carry to Schedule D.

[cjoh]

Hi,

Will all assets show  as being distributed to each partner on the final balance sheet and then the purchase of the interest is done outside of the partnership?  Or is the purchase reflected by a contribution of cash by the buying partner, cash distributed (selling price) to selling partner and the rest of the assets distributed to buying partner?

Thank you.

[RobertG]

You report the sale when you enter the K-1 for the part of the year that you still had an interest.

The sale of the interest in the partnership is reported by the partners on their own returns.

@cjoh

[WAFAKARA]

I SOLD MY  SHARE IN PARTNER SHIP WITH PROFIT TO MY PARTNER BUT NEW PARTNER BUY PART OF THIS INTEREST, WHERE TO CLAIM THE CAPITAL GAIN IF IT IS FINAL K1 FOR ME AND NOT CLOSING THE PARTNERSHIP.

[DavidS127]

When you enter your Final K-1 into TurboTax for your individual tax return (K-1 entry section), there is a screen "Describe the Partnership".  On that screen is a line you need to check for "Disposed of a portion of my partnership interest in 2019".  When you check that box, TurboTax will present you with the questions to report the disposition and correctly report the gain on your tax return.

Click the "magnifying glass Search" icon on the top row, enter "k-1" in the search window and press return or enter, and then click on the "Jump to k-1" link to begin edit the entry for your Schedule K-1.

Here is a screenshot of the TurboTax screen you are looking for:

@WAFAKARA

[quianeb01]

Hi There

First I hope that you and your loved ones are safe during these time 

I saw your reply to this question and I wanted to ask a question. You mentioned that if you sale your LLC that was taxed  as a partnership,  the new single member owner now has  an “Schedule C” business because the LLC will choose final return.  My question is: Can that new owner continue to use the LLC name when filing their Schedule C? 
I originally had a 2 member LLC for a small takeout establishment.  Me 90% the other person 10% . In December 2019  we sold the  LLC interest to one person. My basis was about 100k and the other one was about $20k. There was about 20k of debt on business at the time. I Sold the business for less than my basis. Does the new owner continue to use the name of the llc on their schedule c? how does that work if i’m electing final return on the llc 1065?