Selling a rental property through Partnership (multi-member LLC)

[Calvin Lin]

Hi, I co-own an LLC with another family member and have been filing IRS 1065 Partnership return and then distribute K-1's to individual owners. I am thinking about selling a rental property that the LLC has owned for several years and thus qualifying for long-term capital gain. The gain will be about $60K after realtor commission and expenses. Question: does this capital gain of $60K pass from the LLC to the 2 owners as individual capital gains and thus tax at the personal capital tax rate schedule (eg 0% for married filers with income of $0 to $78,750, 15% for up to $488,850, etc)? I think it does but just want to see if I am correct on this, as if this is correct I can potentially pay very little capital gain tax on it at the end, thus saving myself from having to do a 1031 exchange. If it passes to owners as ordinary business income then that's another story.

[Nicholas Aiola]

@Calvin Lin Yes, it will ultimately be reported on the individual partners' tax returns via the K-1s and taxed at the individual level.

Long-term capital rates are lower than short-term capital gains rates (especially when it's 0%!) but don't forget about depreciation recapture which will be taxed at 25%.