Suzy owns a 30% interest in the JSD LLC.In liquidation of the entity, Suzy receives a proportionate distribution of $30,000 cash, inventory (basis of $16,000, fair market value of $18,000), and land (basis of $25,000, fair market value of $30,000).Suzy's basis in the entity immediately before the distribution was $80,000.As a result of the distribution, what is Suzy's basis in the inventory and land, and how much gain or loss does she recognize?
A)$0 basis in inventory; $25,000 basis in land; $0 gain or loss.
B)$16,000 basis in inventory; $34,000 basis in land; $0 gain or loss.
C)$16,000 basis in inventory; $25,000 basis in land; $9,000 loss.
D)$18,000 basis in inventory; $32,000 basis in land; $0 gain.
E)$25,000 basis in inventory; $25,000 basis in land; $0 gain or loss.

Question

Quizplus · Accepted Answer

Suzy's 30% interest in the JSD LLC is worth $30,000 cash + $18,000 inventory + $30,000 land = $78,000. 
Her proportionate share of the basis in the inventory is $16,000 x 30% = $4,800. This means her new basis in the inventory is $4,800 + $16,000 = $20,800. 
Her proportionate share of the basis in the land is $25,000 x 30% = $7,500. This means her new basis in the land is $7,500 + $25,000 = $32,500. 
Since the fair market values of both the inventory and land exceeded their basis, there is no gain or loss recognized. Therefore, Suzy's basis in the inventory is $20,800 and her basis in the land is $32,500, with no recognized gain or loss.

Suzy Owns a 30% Interest in the JSD LLC