Business & farm

The sale of an LLC interest is treated as if the seller sold their portion of the underlying assets; look through.

Without having the ability to look at the actual financials, I can only provide some higher level thoughts:

• Not sure what you mean when you say "all of the assets are normal assets - no section 751 property".
• Any asset that is depreciable falls into the section 751 category; the recapture of depreciation.
• If all assets are fully depreciated, then you will most certainly have depreciation recapture AND section 751 will apply.  The tax provisions treat the sale as if you sold the underlying assets at FMV.  As a result, I would imagine that the seller (you) would most likely have depreciation recapture (hence section 751).
• Is the LLC overall method of accounting accrual or cash basis?  If cash basis, then section 751 will apply to any unrealized receivables (your share).  This would of course be netted against your share of any payables.  Once again, this only applies if the LLC was on the cash basis of accounting.
• Keep in mind that section 751 is really just a recharacterization of the gain from capital gain to ordinary income; doesn't change the overall gain or loss.
• Also keep in mind that any depreciation recapture (as a result of section 751) will be taxed in the year of sale.  This takes some off guard if proper planning wasn't done as the seller needs to make sure that they receive sufficient cash in the year of sale to cover any ordinary income that is taxed in the year of sale; no installment sale allowed on this component.
• The seller also needs to run the numbers to make sure they actually benefit from the installment sale provisions after the provisions of section 751 are applied.  Example:  the overall gain is $15,000 with section 751 of $17,000 (seller share of depreciation recapture).  In this case, all $17,000 of section 751 is recognized in the year of sale and you then have a $2,000 long term capital loss.  No installment sale benefit here.  
• A final point, who is acquiring your 50% ownership?
  • There is no mention of ownership structure other than your 50%.
  • Revenue Ruling 99-6 may come into play if the LLC becomes a disregarded entity as a result of your sale of 50%.  This wouldn't impact you, but would impact the buyer if the facts fall within the provisions of this revenue ruling.
• Depending on the $$ involved, it may be in your best interest to consult with a tax professional.  Partnership tax provisions are complicated.