Lance contributed investment property worth $640,000, purchased three years ago for $245,000 cash, to Cloud Peak LLC in exchange for an 75 percent profits and capital interest in the LLC. Cloud Peak owes $407,500 to its suppliers but has no other debts. Required information
a. What is Lance’s tax basis in his LLC interest?
b. What is Lance’s holding period in his interest?
c. What is Cloud Peak’s basis in the contributed property?
d. What is Cloud Peak’s holding period in the contributed property?

a. Tax basis $550,625

b.Three years

c. $245,000

d. Three years

Explanation:

a. Calculation to determine Lance’s tax basis in his LLC interest

Lance’s tax basis in his LLC interest will be $550,625 ( $245,000+$305,625)

Based on the information given Lance’s basis in his LLC INTEREST is been made up of the amount of $245,000 basis of the investment property he transferred to the LLC including his $305,625 share which is calculated as ($407,500 x 75%) of the LLC debt reason been that LLC general debt obligations are tend to be treated as NON RECOURSE DEBT which is why Lance’s profit sharing ratio is used to allocate a portion of the LLC debt to him.

b. Based on the information given Lance's Holding period in his interest is THREE YEARS in which Lance had been holding investment property.

c. Cloud Peak’s basis in the contributed property will be Basis of $245,000

d. Cloud Peak’s holding period in the contributed property is THREE YEARS.

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