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A few comments:

• The handling will be determined by how you are reporting this on the books and records of "My LLC" (MLLC)
• If you are maintaining the books and records of MLLC in accordance with GAAP, you would have recorded the original investment based on the purchase price.  While not a GAAP expert, I believe going forward you would need to determine the value of the investment and adjust it accordingly.  This would result in a book to tax adjustment.  This valuation adjustment does not correlate to the information reported on the K-1.
• If you aren't worried about GAAP, then your original investment (on the balance sheet) would be the same as GAAP; the original purchase price.
  • Then going forward you could adjust this investment amount by the applicable boxes on the K-1; which in essence would be the same as maintaining your tax basis in the investment.
  • Both the rental loss (box 2) and the distribution (box 19 code A), would reduce the investment on MLLC balance sheet.
  • You would then pass out the same items to the members of MLLC; as the character of the items received from Investment LLC (ILLC)do not change as they flow out to the members of MLLC.
  • MLLC can decide if they want to pass out the distribution from ILLC or retain it.  Typically when an LLC has losses (ILLC), the entity does not distribute out cash; but it certainly can.
• Based on the questions, at some point you may want to meet with a tax professional so you understand how this works so you don't get caught off guard.  Maintaining the tax basis in ILLC and MLLC are critical to being able to prepare accurate returns.