Question

Lance contributed investment property worth $650,000, purchased Four years ago for $350,000 cash, to Cloud Peak LLC in exchange for an 75 percent profits and capital interest in the LLC. Cloud Peak owes $302,500 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. Tax basis $ 576,875

b. Four years

c. $350,000

d. Four years

Step-by-step explanation:

a. Tax basis $ 576,875

($350,000+$226,875)

Lance’s basis in his LLC interest is made up of the $350,000 basis of the investment property he transferred to the LLC and his $226,875 share of the LLC debt is ($302,500 x 75%) due to the fact that LLC general debt obligations are treated as non recourse debt which is why Lance’s profit sharing ratio is used to allocate a portion of the LLC debt to him.

b. Lance's Holding period in his interest is four years in which Lance had been holding investment property.

c. Basis $350,000

d. Cloud Peak’s holding period in the contributed property is four years