Tom is talking to his friend Bob, who has an interest in Freedom, LLC, about purchasing his LLC interest. Bob's outside basis in Freedom, LLC, is $10,000. This includes his $2,500 one-fourth share of the LLC's debt. Bob's 704(b)capital account is $17,000. If Tom bought Bob's LLC interest for $17,000, what would Tom's outside basis be in Freedom, LLC?
A)$10,000
B)$14,500
C)$17,000
D)$19,500

Question

Quizplus · Accepted Answer

Tom's outside basis would be equal to the purchase price of Bob's LLC interest, which is $17,000, plus Tom's share of the LLC's liabilities, if any. Since Bob's basis already includes his share of the LLC's debt, Tom does not need to add any additional liability amount. Therefore, Tom's outside basis in Freedom, LLC would be $17,000.

Tom Is Talking to His Friend Bob, Who Has an Interest