Question

Lance contributed investment property worth $705,000, purchased Four years ago for $430,000 cash, to Cloud Peak LLC in exchange for an 85 percent profits and capital interest in the LLC. Cloud Peak owes $525,000 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

a. What is Lance’s tax basis in his LLC interest?

Ans Lance’s basis in his LLC Interest = Value of invested property trasnfered +

Share of the LLC Debt

= $ 40,000 + (85% of $ 525,000)

= $ 486,250

(LLC general debt obligations are treated as nonrecourse debt, Lance’s profit sharing ratio is used to allocate a portion of the LLC debt to him)

b. What is Lance’s holding period in his interest?

Ans . 4 Years

        Because Lance contributed a capital asset, the holding period of the contributed assets “tacks onto” his partnership interest.

c. What is Cloud Peak’s basis in the contributed property?

Ans. $430,000, LLC takes at carryover basis in the contributed property.

d. What is Cloud Peak’s holding period in the contributed property?

Ans. 4 Years, LLC inherits Lance’s holding period in the contributed property.

If you require any clarification or explanation needed please let me know.