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.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
