Question

Lance contributed investment property worth $500,000, purchased three years ago for $200,000 cash, to Cloud Peak LLC in exchange for an 85 percent profits and capital interest in the LLC. Cloud Peak owes $300,000 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

Answer : -

a) $455,000

Lance’s basis in his LLC interest is made up of the $200,000 basis of the investment property he transferred to the LLC and his $255,000 share of the LLC debt (85% × 300,000). Because LLC general debt obligations are treated as non-recourse debt, Lance’s profit sharing ratio is used to allocate a portion of the LLC debt to him.

b) Three Years.

Because Lance contributed a capital asset, the holding period of the contributed asset "tacks onto" his partnership interest. The holding period is considered from the date of purchase which is three years.

c) $200,000.

The LLC takes a carryover basis in the contributed property. The basis of the Lance in property was $200,000 so the basis for the Cloud Peak's basis will be the same.

d) Three years.

The LLC inherets Lance’s holding period in the contributed property. The holding period of Lance is three years and the LLC i.e Cloud Peak's holding period will be the same i.e three years.