Question

Ten years ago, Dudley contributed land to the Prosperity LLC. His basis in the land was $260,400. The fair market value at the contribution date was $299,460. This year, when the property's value was $520,800, the LLC distributed that property to partner Nicki. At that time, Dudley's basis in his LLC interest was $130,200 and Nicki's basis was $156,240. Assume the partnership continues in existence and has no hot assets. What gain or loss is recognized as a result of this distribution of precontribution gain property? What is Dudley's basis in his partnership interest following the distribution? What is Nicki's basis in the property received and her partnership interest following the distribution? If an amount is zero, enter "0". No gain or loss is recognized on the distribution. As a result, Dudley's basis in his partnership interest is $. Nicki's basis in the property is $, and her basis in the partnership interest is $.

Answer 1

1. Basis of partners in LLC on the date of distribution

Name	USD	%
Dudley	130,200	45%
Nicki	156,240	55%

2. Calculation of gain or loss on distribution

Particulars	USD
Market value of property as on distribution date	520,800
Less: Market value on the date of contribution from partner	299,460
Gain on distribution	221,340

Therefore, gain recognized in LLC is $ 221,340.

3. Dudleys basis in his partnership interest

Particulars	USD
Dudleys interest prior to distribution	130,200
Gain apportioned to Dudley (221,340*45%)	99,603
Basis of interest	229,803

4. Nickis basis in property

= (Market value of property on distribution date * % of interest)

= 520,800 * 55%

=286,440

5. Nickis interest in partnership after distribution

Particulars	USD
Nickis interest prior to distribution	156,240
Gain apportioned to Nickis	121,737
Nickis interest in partnership	277,977

6. Position of interest in partnership and basis in property

The position will of interest in partnership will not be changed. The property is sold at no loss no gain, therefore, partners basis in partnership will remain same. Whereas, property will be transferred to Nickis and LLC will not have any interest in property.

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Please revert back for any clarifications,.