Question

Item 19Item 19 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 $48,000 nonrecourse loan from First Bank at the time it is formed. Brett contributes cash of $4,600 and a building he bought as a storefront for the motorcycles. The building has a FMV of $43,000, an adjusted basis of $28,000, and is secured by a $33,000 nonrecourse mortgage that the LLC will assume. What is Brett's outside tax basis in his LLC interest?

Answer 1

The outside basis is defined as the tax basis that a partner has on the partnership.

Brett's outside tax basis in his LLC interest = Cash contribution + basis of building - debt of building + Non recourse loan + non recourse mortgage + remaining mortgage on building

Cash contribution = $4,600

Basis of building = $28,000

Debt of building = $33,000

Non recourse loan = Profit sharing ratio × Non recourse loan = 50% × $48,000 = $24,000

non recourse mortgage = $5,000 ($33,000-$28,000)

remaining mortgage on building = 50% × $28,000 = $14,000

Brett's outside tax basis in his LLC interest = $4,600 + $28,000 - $33,000 + $24,000 + $5000 + $14,000

= $42,600

hope you got the answer, please comment for any clarification

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