Hi Mike,
Thank you very much for your response and I apologise for taking a few days to reply.
If you wouldn't mind hand-holding me through this a bit more, I'd appreciate it! First, let me put some real (rounded) numbers on this process since it will make more sense (to me anyway). The properties have been held for 10+ years. At the beginning of 2024, their cost basis before depreciation was $450k, taking into account purchase costs, capital improvements, appliances, etc, over the years. Depreciation was $150k, and there were no liabilities (other than owner invested capital of $2,000, $1k per partner). Cash position was $200k. So, $450k + $200k - $150k = $500k total assets.
Once the properties were sold, their adjusted basis taking into account sale costs and depreciation was $360k. Total gross proceeds were $950k, leaving a gain of $590k. I have therefore entered $290k on line 10, Net Section 1231 Gain, of each partner's K-1. Each partner also has $75k of Unrecaptured Section 1250 Gain on line 9c.
When the LLC was liquidated, the distribution to each partner was $500k. I have been working on the assumption that each partner's basis in the LLC is calculated by adding up their cash and property contributions to the LLC, plus their income as reported on each year's K-1, minus distributions. For property contributions, I have used only the original value. My calculation for each partner's basis in the LLC comes to $280k. I'm not sure how to reconcile that with the $290k on line 10 since they seem to be two totally different calculations, even though the two numbers are very similar.
Does it mean that each partner pays capital gains on $215k ($290k Section 1231 minus $75k Section 1250 on which income tax is paid), AND capital gains on $220k ($500 distribution minus $280k basis in the LLC)?
Maybe I'm muddling these two things together, so would appreciate your continuing guidance. Thank you very much.
