A few comments here:
- Make sure that you file a final form 1065 and that all K-1's are marked final as well for the last year.
- The COD income will be reported on Sch K and K-1. This should show up on the K-1 line 11 code E as a separately stated item.
- Whether or not this income is taxable is determined at the member level NOT at the LLC level. So if the member is not insolvent, then the COD will be recognized on the member's 1040.
- I would imagine that typically most LLC's in this situation the member may have some suspended losses due to either basis or at-risk limitations. These will be freed up in the final year and will be able to offset any COD income.
Depending on the significance of the COD, you may want to consult with a tax professional when preparing your personal 1040.
*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.
