Brad is a 40% member in the BB LLC.At the beginning of the tax year,Brad's capital account showed a balance of $120,000.In this case,his capital account equals his basis in the LLC interest excluding his share of the LLC's debts.His Schedule K-1 showed recourse debt (guaranteed by Brad) and nonrecourse debt of $10,000 and $20,000,respectively.During the current year,BB reported net ordinary income of $200,000 and non-deductible expenses of $2,000.There were no distributions during the year.At the end of the year,Brad's share of recourse (guaranteed) and nonrecourse liabilities were $20,000 and $30,000,respectively.How much is Brad's basis in the LLC interest at the end of the year?

A)$199,200.
B)$200,000.
C)$220,000.
D)$249,200.
E)$250,000.

Question

​Brad is a 40% member in the BB LLC.At the beginning of the tax year,Brad's capital account showed a balance of $120,000.In this case,his capital account equals his basis in the LLC interest excluding his share of the LLC's debts.His Schedule K-1 showed recourse debt (guaranteed by Brad) and nonrecourse debt of $10,000 and $20,000,respectively.During the current year,BB reported net ordinary income of $200,000 and non-deductible expenses of $2,000.There were no distributions during the year.At the end of the year,Brad's share of recourse (guaranteed) and nonrecourse liabilities were $20,000 and $30,000,respectively.How much is Brad's basis in the LLC interest at the end of the year?
​
A)​$199,200.
B)​$200,000.
C)​$220,000.
D)​$249,200.
E)​$250,000.

Quizplus · Accepted Answer

At the beginning of the year, Brad's capital account was $120,000, which is also his initial basis in the LLC interest. To calculate Brad's ending basis, we need to consider the following adjustments:

1. Share of income: Brad's share of net ordinary income was 40% x $200,000 = $80,000. This amount increases his basis.

2. Non-deductible expenses: Brad's share of non-deductible expenses was also 40% x $2,000 = $800. This amount decreases his basis.

3. Guaranteed debt: Brad's share of guaranteed debt was $10,000 at the beginning of the year and $20,000 at the end of the year, resulting in an increase of $10,000 in his basis.

4. Nonrecourse debt: Brad's share of nonrecourse debt was $20,000 at the beginning of the year and $30,000 at the end of the year, resulting in an increase of $10,000 in his basis.

Therefore, Brad's ending basis is calculated as follows:

Beginning basis: $120,000
+ Share of income: $80,000
- Non-deductible expenses: ($800)
+ Share of guaranteed debt: $10,000
+ Share of nonrecourse debt: $10,000
= $219,200

However, Brad's ending basis cannot exceed the total value of his share in the LLC, which is 40% of the LLC's total assets. We do not have information about the value of the LLC's assets, but we know that Brad's capital account balance plus his share of recourse and nonrecourse debt equals $180,000 ($120,000 + $10,000 + $20,000 + $20,000 + $30,000). Therefore, Brad's ending basis cannot exceed $180,000. As a result, his basis at the end of the year is $180,000.

​Brad Is a 40% Member in the BB LLC

Brad Is a 40% Member in the BB LLC