Question

erica and brett decide to form their new motorcycle business as an llc. each will receive an equal profits (loss) interest by contributing cash, property, or both. in addition to the members' contributions, their llc will obtain a $56,000 nonrecourse loan from first bank at the time it is formed. brett contributes cash of $8,000 and a building he bought as a storefront for the motorcycles. the building has an fmv of $51,000 and an adjusted basis of $36,000 and is secured by a $41,000 nonrecourse mortgage that the llc will assume. what is brett's outside tax basis in his llc interest?

Answer 1

Brett's outside tax basis in his LLC interest is $44,000.

Step-by-step explanation:

Brett's outside tax basis in his LLC interest can be calculated by adding the value of his cash contribution to the basis of the property he contributed. In this case, Brett contributed $8,000 in cash and a building with a fair market value (FMV) of $51,000. Brett's basis in the building is the lower of its FMV ($51,000) or its adjusted basis ($36,000). Since $51,000 is higher, his basis in the building is $36,000.

Therefore, Brett's outside tax basis in his LLC interest is the sum of his cash contribution and the basis in the building. Adding the two amounts, $8,000 + $36,000, gives a total outside tax basis of $44,000.