LLC Technical Termination & Buyers Basis

[jjkcpa]

I have a client who wishes to purchase all of the interests of a 4 member LLC, that owns commercial realty. I believe this is technical termination of the LLC. My questions is: Is my client's basis in the realty the cash paid and mortgage liability assumed on the date of sale?

[kcjenkins]

I'd say so, since that is the only logical answer I can think of, although I have not researched it. Seems like he is buying assets, not the entity. The answer could be different if the LLC were taxed as a Corp or Sub S.

[jainen]

>>Is my client's basis in the realty the cash paid and mortgage liability assumed<<

That is his total basis in ALL the assets of the company. Unless the buildings just stand vacant, some value should probably be allocated to personal property and intangibles such as leases, permits, vendor relationships, and going concern. These assets take faster depreciation or amortization compared to the buildings. Of course, another allocation must be made to non-depreciable land values.

[RoyDaleOne]

I am not sure if a Section 754 election is needed or not.

[OldJack]

Well attorneys can make things complicated. If the purchase papers show your client purchasing units of ownership, or equity, of an LLC from other members, the LLC for state entity purposes may still exist as owner of the real estate and your client would be stuck with termination filing of the LLC for federal tax purposes. Otherwise, unless your purchasing client is already a member of the LLC, the tax status of the LLC is irrelevant to your client and the sellers would have to deal with the LLC tax reporting.