Taxes payable on LLC liquidation

[Jewelwing]

My husband and I owned an LLC that held rental properties. We dissolved the LLC this year after first having sold all the properties. Section 1231 gain on the sales is approx $600,000. Section 1250 gain is approx $160,000. I understand that the latter is taxed as income tax and that CGT applies to the remainder ($440,000).

As a final step in the winding-up process, we received approx $1,000,000 in cash. If I've calculated our basis in the LLC correctly, this amounts to approx $580,000. When I enter our K-1s into TT, will we pay CGT on both the $440,000 mentioned above, PLUS the $420,000 distribution ($1,000,000 distribution minus $580,000 basis)? This feels like double taxation, and I'm hoping this will not be the case!

Thank you.

[Mike9241]

The distribution is only taxable if it exceeds your basis before the distribution.  This is usually unlikely. 

for example, say your basis at the beginning of the year was $600K.  $400K the tax basis of the properties + $200K the tax basis you get from certain partnership liabilities.  in addition to the properties, the partnership has $200K in cash. (total assets $600K, total liabilities and partners capital $600K - they must equal). The properties are sold for a net of $1M. your gain is $600K. you pay off the $200K in liabilities. tax basis goes up by the $600K gain and down by the $200K  decrease in liabilities netting to a tax basis of $1M. Making the $1M cash distribution exactly equal to your tax basis before distribution.   

However, there could be situations where the distribution is more than tax basis. We have no way of knowing if you are calculating the tax basis correctly.