Phoebe and Parker are equal members in Phoenix Investors, LLC. They are real estate investors who formed the LLC several years ago with equal cash contributions. Phoenix then purchased a parcel of land.
On January 1 of the current year, to acquire a one-third interest in the entity, Reece contributed to the LLC some land she had held for investment. Reece purchased the land five years ago for $75,000; its fair market value at the contribution date was $90,000. No special allocation agreements were in effect before or after Reece was admitted to the LLC. Phoenix holds all land for investment.
Immediately before Reece’s property contribution, the balance sheet of Phoenix Investors LLC was as follows:
Basis FMV
Land $30,000 $180,000
Phoebe, capital 15,000 90,000
Parker, capital 15,000 90,000
a. At the contribution date, what is Reece’s basis in her interest in the LLC?
b. When does the LLC’s holding period begin for the contributed land?
c. On June 30 of the current year, the LLC sold the land contributed by Reece for $90,000. How much is the recognized gain or loss? How is it allocated among the LLC members?
d. Prepare a balance sheet reflecting basis and fair market value for the LLC immediately after the land sale described in (c). Assume that no other transactions occurred during the year.