Investors & landlords

This transaction is to be handled in accordance with Revenue Ruling 99-6; situation 1.

• rr-99-6.pdf (irs.gov)
• This event is treated as a termination of the partnership
• The partners are deemed to have received a liquidating distribution of their share of the assets.
• You (partner B in this Rev Rul) will take what is called a "substituted basis" in your share of the assets distributed out.  This requires you to allocate the assets received in liquidation in proportion to your outside tax basis.  There are specific steps that need to be followed in determining the substituted basis of assets distributed in liquidation.
• Your substituted basis in the assets received will "tack" the holding period and depreciation method of the LLC to the extent the substituted basis does not exceed the basis when held by the LLC.
• If your substituted basis in the assets received exceeds the basis when held by the LLC, the excess portion is deemed a new asset; new holding period and new depreciation
• Your basis of the purchase of your partner's interest (partner A in the Rev Rul) is the purchase price which is then allocated to the assets purchased.
• The purchased assets will receive a new holding period and depreciation method and period for applicable assets.
• Yes this gets complicated as you now have a bifurcated basis in the assets