Question

Amy and Mitchell share equally in the profits, losses, and capital of the accrual basis AM Products LLC. Amy is a managing member of the LLC (treated as a general partner) and is a U.S. person. At the beginning of the current year, Amy's capital account has a balance of $900,000, and the LLC has debts of $585,000 payable to unrelated parties. The debts are recourse to the LLC, but neither of the LLC members has personally guaranteed them. Assume that all LLC debt is shared equally between the partners. The following information about AM's operations for the current year is obtained from the LLC's records.

Ordinary income 1,080,000
W-2 wages 200,000
Depreciation expense 300,000
Interest income 10,800
Long-term capital loss 9,000
Long-term capital gain 27,000
Charitable contribution 10,850
Cash distribution to Amy 54,000

Unadjusted basis of partnership depreciable property 1,600,000 Year-end LLC debt payable to unrelated parties is $409,500. Assume all transactions are reflected in her beginning capital and basis in the same manner. Also assume that all AM Products' activities are eligible for the qualified business income deduction.

Required:
Prepare Amy's capital account rollforward from the beginning to the end of the tax year.

Answer 1

Amy's basis at beginning = $1,215,000

Amy's ending basis = $1,599,625

Explanation:

As per the data given in the question,

Amy's capital basis at beginning :

Beginning capital balance = $900,000

Amy's share in amount debt = $315,000

Amy's basis at beginning = $900,000+$315,000 = $1,215,000

Amy's ending basis :

Beginning capital balance = $900,000

Taxable income = $1,080,000 × 50% = $540,000

Interest income = $10,800 × 50% = $5,400

Net short term capital gain = ($27000 - $9000) × 50% = $9,000

Total = $1,454,400

Charitable contribution = $10,850 × 50% = $5,425

Cash distribution to Amy = $54,000

Total = $1,454,400 - $5,425 - $54,000 = $1,394,875

Amy's share of debt = $409,500 × 50% = $204,750

Amy's ending basis = $1,394,875 + $204,750 = $1,599,625