Question

Laurel contributed equipment worth $200,000, purchased 10 months ago for $250,000 cash and used in her sole proprietorship, to Sand Creek LLC in exchange for a 15 percent profits and capital interest in the LLC. Laurel agreed to guarantee all $15,000 of Sand Creek’s accounts payable, but she did not guarantee any portion of the $100,000 nonrecourse mortgage securing Sand Creek’s office building. Other than the accounts payable and mortgage, Sand Creek does not owe any debts to other creditors.a. What is Laurel’s initial tax basis in her LLC interest?

b. Laurel’s holding period in the partnership interest begins the day the LLC interest is acquired. True or False?c. What is Sand Creek’s initial basis in the contributed property?


d. What is Sand Creek’s holding period in the contributed property?

Answer 1

A. $280,000

B. TRUE

C. $250,000

D. 10 MONTHS

Step-by-step explanation:

a. Calculation for the initial tax basis of Laurel’s

Using this formula

Initial tax basis=Equipment Basis +Accounts payable+Nonrecourse mortgage

Let plug in the formula

Initial tax basis= $250,000+ $15,000+(15%*$100,000 )

Initial tax basis=$250,000+ $15,000+$15,000

Initial tax basis= $280,000

Therefore the Initial tax basis will be $280,000

b. TRUE. The holding period begins or start the day the interest was acquired reason been that the equipment which is the asset that Laurel contributed is not in anyway a capital.

c. Based on the information given the initial basis in the property that was contributed will be the amount of $250,000

d. Based on the information given the holding period in the property that was contributed is 10 MONTHS reason been that we were told that the equipment which Laurel contributed was worth the amount of $200,000 which was purchased 10 MONTHS ago for the amount of $250,000 to Creek LLC for the exchange of profit as well as the capital interest in the LLC of 15% .