Jay transferred his farm land to an LLC in exchange for a 50% interest in the capital, profits and losses. His basis in the land was $700,000 and its fair market value was $1,000,000. Ira contributed $1,000,000 cash and received a 50% interest in capital, profits and losses. The partnership spent the $1,000,000 for land development ($800,000) and selling expenses ($200,000). The land was subdivided into 40 lots priced at $80,000 each. Assume all costs are in proportion to the number of lots sold.
In year 1 the LLC sold 30 lots at the asking price. In year 2 the LLC sold the remaining 10 lots for the asking price. Allocate the taxable income.
WHAT I HAVE SO FAR: Jay Cap. Account = $1 mil, Adjusted Basis (also tax basis) = $700,000
Ira Capital Account = $1 mil, Basis = $1mil
Year 1 Profits per partner = $825k
WHAT NEEDS TO BE COMPLETED:
Taxable income, Jay, years 1 & 2
Taxable income, Ira, years 1 & 2