Question

Laurel contributed equipment worth $200,000, purchased 10 months ago for $240,000 cash and used in her sole proprietorship, to Sand Creek LLC in exchange for a 15 percent profits and capital interest in the LLC. Laurel agreed to guarantee all $20,000 of Sand Creek’s accounts payable, but she did not guarantee any portion of the $100,000 nonrecourse mortgage securing Sand Creek’s office building. Other than the accounts payable and mortgage, Sand Creek does not owe any debts to other creditors. What is Laurel’s initial tax basis in her LLC interest?

Laurel contributed equipment worth $200,000, purchased 10 months ago for $240,000 cash and used in her sole proprietorship, to Sand Creek LLC in exchange for a 15 percent profits and capital interest in the LLC. Laurel agreed to guarantee all $20,000 of Sand Creek’s accounts payable, but she did not guarantee any portion of the $100,000 nonrecourse mortgage securing Sand Creek’s office building. Other than the accounts payable and mortgage, Sand Creek does not owe any debts to other creditors. What is Laurel’s initial tax basis in her LLC interest?

Answer 1

Particulars	Amount
FMV of equipment	$      200,000
100% of debt guarantee - Accounts payable	$        20,000
Share of non-recourse debt - $100,000 × 15%	$        15,000
Tax basis	$      235,000

Initial tax basis in LLC is $235,000.

Accounts payable is guaranteed by her and is allocated in full to her. Mortgage is non-recourse debt and only her share is allocated to her.

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