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To the extent the transferee member's basis does not exceed the LLC's predistribution basis, the member assumes the LLC's role and continues to depreciate the property using the remaining life and method used by the LLC (Sec. If the member's basis exceeds the LLC's predistribution basis, the excess is treated as newly acquired property that is placed in service by the distributee at the time of distribution.This excess basis is subject to the depreciation rules, lives, and methods in effect at the time of the distribution (Sec. Holding Period for Distributed Assets A member's holding period for property received in a nontaxable distribution includes the holding period of the LLC (Secs. This rule applies whether the member receives the property in a current distribution or a liquidating Suspended Losses If an LLC distributes assets to a member in a liquidating distribution and those assets have been used in a passive activity, the member continues to carry over any suspended passive activity losses (PALs) with respect to that activity.737); or (4) the distribution is part of a disguised sale (see Sec. A loss may be recognized upon a distribution in liquidation of a member's interest if no property other than cash, unrealized receivables, and inventory is received. Nontaxable liquidating distribution of cash and property: Z LLC is liquidating. To liquidate his interest, Z distributes to R ,000 cash plus real property with a ,000 FMV.The loss recognized is the excess of the member's adjusted basis in the LLC over the sum of the cash distributed and the member's basis in the unrealized receivables and inventory received (Sec. Z's adjusted basis in the real property is ,000.The LLC has no unrealized receivables or appreciated inventory, so Sec. The LLC acquired the real property by R recognizes no gain or loss on the liquidation.R first reduces his ,000 outside basis by the ,000 cash distribution.
If any property besides cash, marketable securities, receivables, and inventory is distributed in the liquidating transaction, all loss recognition is deferred until the distributed property is actually sold or If no gain or loss is recognized on a liquidating distribution, the member's aggregate basis in the property received equals the member's basis in his or her LLC interest just before the distribution, reduced by the cash and marketable securities distributed (Sec. Special rules apply where multiple properties are distributed in a liquidating distribution or where the total carryover basis of distributed properties exceeds the member's basis in the LLC.
Generally the trustee appointed will either arrange to auction off the inventory assets of clients, put out a tender, or offer to purchase the inventory, which usually goes to the highest bidder on a cash basis.
Reselling the inventory can be accomplished in a few ways including selling the inventory to retailers on a wholesale basis or selling the inventory in smaller quantities to other inventory liquidators.
His remaining ,000 of basis in his LLC interest becomes his basis in the distributed real property (Sec. Z does not recognize any gain on the distribution although the FMV of the property R receives (,000) exceeds its ,000 Example 2.
Recognizing a loss on a liquidating distribution: V has a ,000 basis in L LLC, which is classified as a partnership.
Because the losses have not reduced the member's basis in his or her LLC interest, the suspended losses effectively constitute additional basis to the member when (1) determining gain or loss, if any, on the liquidating distribution, or (2) determining the basis of distributed Planning the Type of Property to Distribute A member wishing to prevent gain recognition on a distribution should make sure the LLC does not distribute cash and marketable securities in excess of his or her basis in the LLC.