Discussion:Sale of partnership interest - Ordinary loss under Sec 751

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Revision as of 19:23, 10 December 2008
RoyDaleOne (Talk | contribs)
(I see, there is)
← Previous diff		 Revision as of 19:26, 10 December 2008
PVVCPA (Talk | contribs)
(Yes, the LLC has)
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{{ForumReplyPost|UserID=RoyDaleOne|Date=10 December 2008|Text=I see, there is no realized loss at this point in time.}} {{ForumReplyPost|UserID=RoyDaleOne|Date=10 December 2008|Text=I see, there is no realized loss at this point in time.}}
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 +{{ForumReplyPost|UserID=PVVCPA|Date=December 10, 2008|Text=Yes, the LLC has not yet realized the loss. But a few of the members wish to realize their loss this year by selling their interest. I want to confirm that the loss on the sale of their partnership interest this year will not be a capital loss.}}

Revision as of 19:26, 10 December 2008

Discussion Forum Index --> Advanced Tax Questions --> Sale of partnership interest - Ordinary loss under Sec 751
Discussion Forum Index --> Tax Questions --> Sale of partnership interest - Ordinary loss under Sec 751

PVVCPA (talk|edits) said:

December 10, 2008
LLC taxed as partnership organized for the sole purpose of developing commercial building for resale. Therefore, income from sale of building would be taxed as ordinary. Due to current economy, the building is now worth less than the construction loan and less than the LLC's basis in the land and construction costs. LLC is currently in discussions with bank, resolution (foreclosure) will not occur until 2009.

Some members of LLC wish to recognize loss in 2008, by selling their interest for $1 to managing-member.

Would the underlying assets of LLC be considered hot assets (inventory) thereby requiring the collapsible partnership provisions of Section 751(b)?

And therefore, would the selling partners be allowed an ordinary loss for the sale of their partnership interest?

RoyDaleOne (talk|edits) said:

10 December 2008
Tell me a again, how you are going to generate a loss?

Is Qualified Real Property Business Indebtedness a factor?

PVVCPA (talk|edits) said:

December 10, 2008
The partner has a loss by way of selling their interest for a $1 while their basis in their partnership interest is say $50,000.

Yes. The loss at the LLC level would be the non-recourse financing indebtedness less the basis in the building. Or in other words, the LLC's loss is equal to the sum of the LLC's member's capital balances. Therefore, at the member-level, each member has a loss equal to their capital balance.

RoyDaleOne (talk|edits) said:

10 December 2008
I see, there is no realized loss at this point in time.

PVVCPA (talk|edits) said:

December 10, 2008
Yes, the LLC has not yet realized the loss. But a few of the members wish to realize their loss this year by selling their interest. I want to confirm that the loss on the sale of their partnership interest this year will not be a capital loss.
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