If you are a business owner, you may be considering selling your LLC or its stock. However, there are many factors to consider when it comes to LLC stock sales and taxes. One of the most important considerations is the Section 754 election.
What is the Section 754 election?
The Section 754 election is a tax election that can be made by a partnership or LLC. It allows for a step-up in the tax basis of certain partnership property when a partner buys or sells their interest in the partnership. This can be a significant tax advantage in certain situations.
Why is the Section 754 election important for LLC stock sales?
When a buyer purchases an LLC, they are essentially buying the company’s assets. The purchase price is allocated to the different assets of the LLC based on their fair market value. This allocation can have significant tax implications, as gains or losses on the sale of different assets are treated differently.
However, if the LLC has made a Section 754 election, the buyer can get a step-up in the tax basis of the LLC’s assets. This means that any gains or losses on the sale of those assets will be calculated based on the new, higher tax basis. This can result in significant tax savings for the buyer.
How does the Section 754 election work?
The Section 754 election is made by the partnership or LLC by filing a statement with the IRS. Once the election is made, it applies to all subsequent partner transfers. When a partner sells their interest in the partnership or LLC, the buyer gets a step-up in the tax basis of the partnership’s assets.
It’s important to note that the Section 754 election can have complex tax implications, and it’s important to work with a qualified tax professional to understand the implications of the election.
In conclusion, the Section 754 election can be a valuable tool for LLC stock sales. It allows for a step-up in the tax basis of the LLC’s assets, which can result in significant tax savings for the buyer. However, it’s important to work with a qualified tax professional to understand the full implications of the election.
