Question

Sweeney originally contributed $286,000 in cash for a one-fourth interest in the Gilbert LLC. During the several years that Sweeney was a member of the LLC, his share of the LLC’s income was $171,600 and he withdrew $114,400 cash. The LLC’s liabilities are $143,000, of which Sweeney’s share is $35,750. The LLC has $71,500 of hot assets, of which Sweeney’s share is $17,875. Sweeney sells his LLC interest to Jana for $377,520 cash, with Jana assuming Sweeney’s share of the LLC’s liabilities.

How much is Sweeney’s gain on the sale, and what is its character? How much is Jana’s adjusted basis for her LLC interest?

What is the ordinary income recognized and the long-term gain recognized? I did the math and know the total gain on sale is $34,320 and the adjusted basis for her LLC interest is $413270, but I don't know the ordinary income and long-term capital gain.

Answer 1

1. There is no Long term gain for Sweeney. He is no longer a member of Gilbert LLC. He has sold the entirety to Jana and now Jana is the member of Gilbert LLC for the equivalent of what Sweeney held

2. Short term gain of Sweeney is $16175

3. Jana's adjusted interest in Gilbert is $361075

SWEENEY
		$			$
	Withdrawal	114400		Original contribution	286000
	Balance c/d	343200		Income	171600
		457600			457600
PROFIT TO   SWEENEY
	Net interest in Gilbert LLC ( $343200 + 35750 – 17875)	361075		Cash from Jana	377520
	GAIN ON SALE (Short term)	16175
		377520			377520

GILBERT LLC--- FINANCIAL POSITION
	$	$		$	$
	SWEENEY NOW Jana	LLC		SWEENEY Now Jana	LLC
ASSETS	17875	71500
			LIABILITIES	35750	143000