1. Lance contributed investment property worth $500,000, purchased three years ago for $200,000 cash, to Cloud Peak LLC in exchange for an 85 percent profits and capital interest in the LLC. Cloud Peak owes $300,000 to its suppliers but has no other debts.
a. What is Lance’s tax basis in his LLC interest?
Tax basis$455,000
Explanationa.$455,000.Lance’s basis in his LLC interest is made up of the $200,000 basis of the investment property he transferred to the LLC and his $255,000 share of the LLC debt (85% × $300,000).
Because LLC general debt obligations are treated as nonrecourse debt, Lance’s profit-sharing ratio is used to allocate a portion of the LLC debt to him.
b. What is Lance’s holding period in his interest?Holding periodPeriod of three years for which Lance had been holding investment propertyExplanationb.
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