Xena and Xavier form the XX LLC. Xena contributes cash of $20,000, land (basis = $40,000; fair market value = $25,000), equipment (basis = $0; fair market value = $35,000), and inventory (basis = $30,000; fair market value =
$40,000). Xavier contributed $120,000 of cash. How much is the partnership's basis in the land, equipment, and inventory, and how much is Xena's basis in the partnership interest?
A) $25,000 land, $0 equipment, $30,000 inventory; $55,000 partnership interest.
B) $40,000 land, $0 equipment, $30,000 inventory; $90,000 partnership interest.
C) $25,000 land, $35,000 equipment, $30,000 inventory; $105,000 partnership interest.
D) $40,000 land, $35,000 equipment, $40,000 inventory; $135,000 partnership interest.

Question

Quizplus · Accepted Answer

The partnership's basis in the assets contributed by Xena is equal to her basis in those assets, not their fair market value. Therefore, the basis in the land is $40,000, the basis in the equipment is $0 (since it was stated to have a basis of $0), and the basis in the inventory is $30,000. Xena's basis in the partnership interest is the sum of her contributions' bases, which is $20,000 (cash) + $40,000 (land) + $0 (equipment) + $30,000 (inventory) = $90,000.

Xena and Xavier Form the XX LLC