Question

Afrah contributed land to the Balsam LLC. Her basis in the land was $781,000. The fair market value at the contribution date was $886,000. This year, the LLC distributes other property with an adjusted basis of $219,000 and fair market value of $280,000 to Afrah. Afrah's basis in her LLC interest was $224,000 immediately before the distribution.

As a result of the distribution in this year, how much gain does Afrah recognize, how much is her basis in her LLC interest after the distribution, and how much is the LLC's basis in the land Afrah originally contributed? Assume the partnership continues in existence and has no hot assets.

Afrah recognizes gain of $____ .

Her basis in her LLC interest is $______ after the distribution and the LLC's basis in the land Afrah originally contributed is now $________ .

Answer 1

Solution:

Afrah recognizes gain of $105,000 . Her basis in her LLC interest is $110,000 after the distribution and the LLC's basis in the land Afrah originally contributed is now $886,000 .

Calculations:

The precontribution gain of Afrah :

= $886,000 - $781,000

= $105,000

Inherent gain from distributed property:

= $280,000 - $219,000

= $61,000

Afrah recognizes gain of $105,000 lessor of precontribution gain and inherent gain.

Basis of interest:

= LLC interest + Gain - Adjusted basis

= $224,000 + $105,000 - $219,000

= $110,000

After distribution LLC's basis in the land Afrah contributed :

= $105,000 + $781,000

= $886,000