Level 2

LLC: Negative Capital Accounts upon dissolution of LLC - taxable?

Forum|Forum|3 years ago
May 5, 2023
1 reply
10 views

If an LLC member does not pay back the 'negative capital account balance' , ie of $2,000,000; is this taxable income to the departing member of the LLC?

I understand that the Partners share of liabilities would be considered as part of the 'taxable income'.

I just see that negative capital account amount needs to be paid back...but what if it's not?

Thanks.

This topic has been closed for replies.

IRonMaN

Level 15

How did they get to a negative $2M? How did all of the debts get paid off or are they still hanging there to be recognized as forgiveness of debt income or are the partners paying them off personally?

Slava Ukraini!

R

RajeshTemeculaAuthor

Level 2

Thanks:

How did they get to a negative $2M? OP: They had a large loss in 2021 of about $1.7m.

How did all of the debts get paid off or are they still hanging there to be recognized as forgiveness of debt income or are the partners paying them off personally? OP: The debts are still their, and likely to be forgiven on the sale of the LLC. My understanding is that these forgive debts will be taxable income to member, and taxed at Long Term Capital Gains tax rates.

But I am lost on what happens to Negative Capital Account balance.

Thanks.

R

RajeshTemeculaAuthor

Level 2

The rules of the LLC do not require this 'selling' member to pay back their negative capital account, if that is relevant. I did ask about this to 'selling' member.

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