Question

Lance contributed investment property worth $512,500, purchased Five years ago for $210,000 cash, to Cloud Peak LLC in exchange for an 65 percent profits and capital interest in the LLC. Cloud Peak owes $520,000 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

Part a)

The value of Lance's tax basis in his LLC is arrived as below:

Lance's Tax Basis in his LLC Interest = Value (Purchase Price) of Investment Property Transferred to LLC + Portion of LLC's Debt

Substituting values in the above formula, we get,

Lance's Tax Basis in his LLC Interest = 210,000 + 65%*520,000 = $548,000 (answer for Part a)

______

Part b)

The Lance's holding period in his interest is same as the period/years for which he has held the the property/asset before transferring it to the LLC. Therefore, Lance's holding period in his interest is 5 years.

Answer for Part b) is 5 years.

______

Part c)

The value of Cloud Peak’s basis is same as the carryover basis in the contributed property which is $210,000. In other words, the interest in contributed property is equal to price paid (for the property) at the time of procurement by Lance.

Answer for Part c) is $210,000.

______

Part d)

Cloud Peak’s holding period in the contributed property is same as Lance's holding period of the property/asset. Therefore, Cloud Peak’s holding period in the contributed property is 5 years.

Answer for Part d) is 5 years.