LLC Member buy out

[Bucky]

Two member LLC. One member is buying other member out. This is a day care business. They both signed a lease for 10 years which still has 4 or 5 years to go. Client selling her interest has worked out a buyout with landlord for $35000. This will get her off the lease. How or can we deduct this amount. I don't think there is any way to add to basis since it will happen after sale.

[ChEAr$]

Why not?

Two member LLC. One member is buying other member out. This is a day care business. They both signed a lease for 10 years which still has 4 or 5 years to go. Client selling her interest has worked out a buyout with landlord for $35000. This will get her off the lease. How or can we deduct this amount. I don't think there is any way to add to basis since it will happen after sale.

why not add to basis? (I would) Even if happening after the sale, it's still sale connected.

[OldJack]

If taxpayer makes a guarantee agreement in the course of his trade or business, he's entitled to a business bad debt deduction for any payments he makes as guarantor, of principal or interest [Reg.§1.166-9(a)].

Such business bad debt is deducted in the year paid where income/loss from the business is reported. In your case by a partner on 1040 Sch-E, page 2.