Ben and Beth are equal partners in BB, LLC, formed on June 1 of the current year. Ben contributed land that he inherited from his father three years ago. Ben’s father purchased the land in 1950 for $6,000. The land was worth $50,000 when Ben’s father died.
Beth has significant experience developing real estate. After the LLC is formed, she will prepare a plan for developing the property and secure zoning approvals for the LLC. She would normally bill a third party $25,000 for these efforts. Beth will also contribute$50,000 cash in exchange for her 50% interest in the LLC. The value of her 50% interest is $75,000.
a. How much gain or income will Ben recognize on his contribution of the land to the LLC? What is the character of any gain or income recognized?
b. What basis will Ben take in his LLC interest?
c. How much gain or income will Beth recognize on the formation of the LLC? What is the character of any gain or income recognized?
d. What basis will Beth take in her LLC interest?