Question

Lance contributed investment property worth $690,000, purchased Two years ago for $277,500 cash, to Cloud Peak LLC in exchange for an 85 percent profits and capital interest in the LLC. Cloud Peak owes $505,000 to its suppliers but has no other debts.

a. What is Lance’s tax basis in his LLC interest?

b. What is Lance’s holding period in his interest?

c. What is Cloud Peak’s basis in the contributed property?

d. What is Cloud Peak’s holding period in the contributed property?

Answer 1

a)$706750

Lance’s basis in his LLC interest is made up of the $277500 basis of the investment property he transferred to the LLC and his $429250 share of the LLC debt (85% x $505000). Because LLC general debt obligations are treated as nonrecourse debt, Lance’s profit sharing ratio is used to allocate a portion of the LLC debt to him.

B) 2 years

Because Lance contributed a capital asset, the holding period of the contributed assets “tacks onto” his partnership interest.

C) $277500

The LLC takes a carryover basis in the contributed property.

D) 2 years

The LLC inherits Lance’s holding period in the contributed property.

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