Question

Ten years ago, Dudley contributed land to the Prosperity LLC. His basis in the land was $100,000. The fair market value at the contribution date was $115,000. This year, when the property's value was $200,000, the LLC distributed that property to partner Nicki. At that time, Dudley's basis in his LLC interest was $50,000 and Nicki's basis was $60,000. Assume that the partnership continues in existence and has no hot assets.

1) What gain or loss is recognized as a result of this distribution of precontribution gain property?

2) What is Dudley's basis in his partnership interest following the distribution?

3) What is Nicki's basis in the property received and her partnership interest following the distribution?

Answer 1

Answer:

On the basis of partners in LLC on the date of distribution:

Dudley	$50,000	45.5% (approx)
Nickis	$60,000	54.5% (approx)

1)

Calculation of Gain or loss on distribution:

Description	Amount	Amount
Market value of property as on distribution date		$ 2,00,000
Less: market value on contribution date	$115,000
Gain on distribution	$ 2,00,000 - $115,000 = $ 85,000	$ 85,000

2)

Calculation of dudley's basis in his partnership interest:

Description	Amount	Amount
Dudley's interest prior to distribution		$50,000
Gain apportioned to dudley	=$85,000 * 45.5% =$85,000*45.5/100 =$85,000*0.455 = $ 38,675	$ 38,675
Dudley's basis of interest	=$50,000 + $ 38,675 = $ 88,675	$ 88,675

3)

Calculation of Nickis basis in property:

Description	Amount	Amount
Nickis basis in property	=Market value of property on distribution date * 54.5% =$ 2,00,000*54.5/100 = $ 1,09,000	$1,09,000

Calculation of Nickis interest in partnership after distribution :

Description	Amount	Amount
Nickis interest prior to distribution		$ 60,000
Gain apportioned to nickis	=$ 85,000 * 54.5% =$ 85,000 * 0.545 = $ 46,325	$ 46,325
Nickis interest in partnership	$ 60,000 + $ 46,325 = $ 1,06,325	$ 1,06,325

Position of interest in partnership and premise in property .the position will of interest in partnership won't be changed .The property is sold at no loss no gain ,along these lines accomplices premise or basis in partnership  will stay same though property will be moved to Nickis and LLC won't have any interest in property