Question

Required information When High Horizon LLC was formed, Maude contributed the following assets in exchange for a 25 percent capital and profits interest in the LLC: Market Value Basis Maude: Cash Land $28.$28. eee 128, see 385, see $156,5ee $413, see Totals "Nonrecourse debt secured by the land equals $175,500 James, Harold, and Jenny each contributed $238,000 in cash for a 25 percent profits and capital interest. (Leave no answer blank. Enter zero if applicable.) d. What is High Horizon's tax basis in its assets? Tax basis 9 of 21 Next >

Answer 1

A tax basis is the value of an asset that is used when determining the gain or loss when the asset is sold. Generally, it equals the asset purchase price minus any accumulated depreciation.

A partner's tax basis in the partnership generally equals the adjusted basis of property contributed or cash paid plus any income recognized by the partner on the formation of the partnership, plus the partner's share of the liabilities of the partnership under 26 U.S.C. § 752. Such income may arise from services performed in exchange for the partnership interest. The member's basis is adjusted each year for his share of the entity's income or loss. Generally, the adjustment cannot reduce tax basis below zero. The member's basis is also reduced for distributions, and increased by the member's share of partnership income.

Under United States rules,^[6] a partner's tax basis is increased to the extent the partner's share of the liabilities of the partnership increases. The partner's tax basis is decreased to the extent the partner's share of partnership liabilities is considered to have decreased. For example, if Ann is a general partner of ABC partnership, Ann's tax basis in the partnership may be increased if the partnership borrows money. Special allocation rules for debt vary, depending on whether the debt is considered to be recourse or non-recourse to the partners in a partnership.

In case of Maude - Your sale basis of land is what you get from the buyer, minus any costs of sale. For instance, if you sell your land, you would get $385,500 but pay $175,500 in debt, Maude sale basis would be $210,000. And Maude gets $28,000 in cash so his contribution is $238,000.

Others such as James , Harold and Jenny each contribute $238,000 as well.

Hence each partner has a share of 25%.

So tax basis on land would be $210,000 which if sold towards capital gain is subject to a 15 percent federal capital gains tax.