membership transfer

[lloveland]

Hello All,

My business partner and i had an LLC for 9 months of 2019.  In October he resigned and we transferred his membership interest into a loan to the business with regular monthly payments and terms.  I made a down payment on this also.  After the purchase date, the business is now a single member LLC. 

I am using turbotax business to generate the final k-1 for the LLC through October.  I then will use Turbotax premier to do my personal return and the business for the remainder of the year since the single member LLC is now a disregarded entity.

In Turbotax business I believe i have all of the "business info" questions answered correctly, but I'm just wondering where the information regarding the purchase amount for his membership interest would get entered as i am not seeing it anywhere in turbotax business.  

Also curious how this information will get entered in turbotax premier if anyone has some guidance.  

Thank you in advance!

[DavidS127]

The payments you made to the departing partner and the note payable to the partner are to purchase the partner's interest in the business.  These are not income or deductions for the business, so it doesn't impact the partnership tax return.

For you, the payment/note payable represent an increase in your basis for the business you still own.  These loans are actually loans to you to buy the other partner's interest in the business, not loans to the business itself.  They do not show up on your personal tax return.

For the departing partner, those same payments/note payable represent proceeds from the sale of his interest in the business.  Depending on the departing partner's basis in their portion of the business, they will have a gain on loss on the sale of a business.  That gain or loss is reported on the departing partner's personal income tax return.

[Anonymous]

if the payments include interest, which they probably should, that interest is deductible as investment interest form 4952.  you ex partner would have interest income for the same amount.

[lloveland]

Thank you! this is helpful

So the increase in basis would then be reported on the business 1065 then?