How do you determine the FMV of a LLC property distribution?

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We currently have a small two person LLC that holds a fully paid off investment property. We would like to distribute the fully-paid off property to its owners as a return of capital.

I understand that the distribution might affect my tax basis in the property. How do I determine the FMV of the property at the time of distribution?
Originally posted by @John Anderson :
We currently have a small two person LLC that holds a fully paid off investment property. We would like to distribute the fully-paid off property to its owners as a return of capital.

I understand that the distribution might affect my tax basis in the property. How do I determine the FMV of the property at the time of distribution?



Generally, the partner's basis in property received in current distribution is the same as the property's basis in the partnership's hands [IRC Sec. 732(a)(1)], unless your predistribution outside basis is less than that amount.

Note that the FMV of the property is irrelevant. However, FMV is relevant when the partner's predistribution basis in his interest is less than the partnership's aggregate basis in the assets that are distributed. In that circumstance, special rules under IRC Sec. 732(c) will apply.

For property received in a nontaxable distribution, a partner's holding period includes the partnership's holding period [IRC Secs. 735(b) and 1223(2)].

This is a complicated issue.