2 member LLC told me that 1 member sold half of his interest to an outside party. What they actually did was the LLC sold 25% of the ownership in the building to an outside party. How do I handle this for book and tax? Thanks.
It depends on the financial rights each of the members has in the LLC. You should find that information in the LLC's Operating Agreement.
As long as the funds of the sale of the building flow into the company and the financial rights between the two members remain unchanged, the monetary value of the ownership of the members is not affected. It's merely a shifting between a monetary (assets) in exchange for a real estate asset.
Credit: Fixed Asset
If the sale results in a capital gain, the distribution of that gain would be allocated to the members according the Operating Agreement's definition of members share in the allocation of profits.
It is therefore important that we always breakdown the current and accumulated profits in the Balance Sheet by each member and, for record's sake, have each member acknowledge their agreement with the balances shown by signing a copy of the reconciliation of heir account.