While we can most likely handle most questions on a forum such as this, sometimes the issue requires more information / details and is more conducive with a one-on-one meeting with a tax professional; which based on your limited facts does warrant that discussion.
I will provide a few high level comments to keep in mind when you have that meeting:
- As was mentioned, when your parents passed away and you received your interest in the LLC (which I am assuming is treated as a partnership), your beginning basis in your investment was the FMV at the date of death.
- This is the beginning point for your initial tax basis (outside basis).
- You have the burden of proof as to what that FMV was at that time; ie: possibly the filing of an estate tax return, etc.
- Once you became a member of the LLC, you received a K-1 every year of which was used to prepare your individual tax return.
- This annual K-1 should also be used to adjust your tax basis each year based on the applicable lines on the K-1. Hopefully this has been handled and is up-to-date. If not, that could be a significant project; but maybe not....see related party comment.
- Now you are to the point that you sold your interest in the LLC.
- In a normal sale, you would have a selling price and then a cost basis; the cost basis being your tax basis in the LLC. This then determines your gain or loss on the sale of your interest.
- Since a sale of a partnership interest is a "look-through" sale, some of the gain could be ordinary gain instead of capital gain depending on the partnership property; inventory, depreciation recapture, etc. (hot assets).
- While you may not have this issue, based on the limited facts, you do have an issue of selling to a related party AND the sale was not an arms-length transaction.
- As a result of that, there could be some gifting issues involved, and could preclude the ability to take any loss; the facts don't indicate the family relationship and there are a couple of code sections that deal with related parties.
The partnership world is complex regardless of the size of the business.
As noted above, I suggest you meet with a tax professional to help you determine the correct tax implication to both you and the buyer.
*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.
