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 $52,000 nonrecourse loan from First Bank at the time it is formed. Brett contributes cash of $6,000 and a building he bought as a storefront for the motorcycles. The building has an FMV of $47,000 and an adjusted basis of $32,000 and is secured by a $37,000 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 $75,000.

Step-by-step explanation:

To calculate Brett's outside tax basis in his LLC interest, we need to consider the cash contribution and the property contribution he made. Brett contributed cash of $6,000 and a building with an FMV of $47,000 and an adjusted basis of $32,000. Additionally, the building is secured by a nonrecourse mortgage of $37,000 that the LLC will assume. Therefore, Brett's outside tax basis in his LLC interest can be calculated as follows:

1. Cash contribution: $6,000
2. Adjusted basis of the building: $32,000
3. Mortgage assumed by the LLC: $37,000

Adding these values together, Brett's outside tax basis in his LLC interest is $75,000.

Answer 2

Brett's outside tax basis in his LLC interest = $48,000

Step-by-step explanation:

As per the data given in the question,

Cash = $6,000

Adjusted basis of building = $32,000

Debt of building = -$37,000

50% profit sharing ratio × $52,000 = $26,000

Now recourse mortgage - adjusted basis = ($37,000-$32,000)

= $5,000

Remaining mortgage on building = 50% × $32,000

= $16,000

Brett's outside tax basis in his LLC interest = $48,000