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.Basis is assigned to the distributed properties as Step 4: Any basis increase (i.e., the distributee member's basis over and above the LLC's basis in the distributed assets) is then allocated to appreciated assets (other than unrealized receivables and inventory) in proportion to each asset's respective amount of any unrealized appreciation. 704(c)(1)(C) property is retained by the LLC, and no property of like character is distributed, then that property's Sec.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.The suspended PAL is allowed without limitation if the member disposes of substantially all of the passive activity (or his or her interest in the activity) in a taxable disposition to an unrelated third party (Sec. Accordingly, if a member receives only cash in complete liquidation of his or her LLC interest, it appears any suspended PALs generated by the LLC's activities should be fully deductible in the year of the liquidating basis from the same activity (Sec. Any losses suspended because of lack of basis under Sec.
Under state law, there may be questions regarding who remains liable for LLC liabilities distributed to members, required notifications to creditors of the LLC's intent to liquidate, required changes in legal title to distributed assets, required notification to the state of the LLC's intent to liquidate, compliance with applicable bulk sales acts (if the LLC's assets are to be sold prior to liquidation), etc.R first reduces his ,000 outside basis by the ,000 cash distribution.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.Because the distribution is proportionate, the hot asset rules of Sec. V has a ,000 capital loss on the liquidating distribution, computed as shown in the exhibit Under the general distribution rules, V can allocate only ,000 of basis to the distributed inventory—its adjusted basis to the LLC (Sec. This leaves V with ,000 of remaining basis in her interest but with no other distributed assets to absorb the additional basis.
Consequently, she is allowed a ,000 capital loss on the liquidation of L (Sec. Note: Gain or loss recognized on a liquidation may also affect the calculation of the member's net gain for purposes of the 3.8% net investment income tax.Converting capital loss on a liquidating distribution to ordinary loss: J, A, and B are equal members in BC LLC, which owns several small commercial buildings in White Fish, Mont.