Question

Erica and Brett decide to form their new motorcycle business as an LLC. Each will receive an equal profits (loss) interest by contributing cash, property, or both. In addition to the members' contributions, their LLC will obtain a $60,000 nonrecourse loan from First Bank at the time it is formed. Brett contributes cash of $10,000 and a building he bought as a storefront for the motorcycles. The building has a FMV of $55,000, an adjusted basis of $40,000, and is secured by a $45,000 nonrecourse mortgage that the LLC will assume. What is Brett's outside tax basis in his LLC interest?

Multiple Choice

• $47,500.

• $55,000.

• $52,500.

• $60,000.

Answer 1

Answer : Option D , $60,000

Explanation;  

A contributing partners outside basis initially consists of the basis of considered property less any debt relief plus any partnership debt allocated to the partner when allocating nonresourse debt securities by the contributed property , any non resource debt that exceeds the basis of the contributed property must be distributed to the partner that contributed the property any balance nonrecourse debt is allocating on the basis of partners profit sharing ratio.

= $10,000 (Cash ) + $40,000 (Adjusted Basis) - $45,000 (Debt on Building) + $30,000 ($60,000 × 50%) + $5,000 (Non recourse mortgage - Basis of conducted property ) + $20,000 ($40,000 ×50%) = $60,000