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 prior year 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 current year Schedule K-1 showed recourse (guaranteed) and nonrecourse debt of $20,000 and $30,000, respectively. How much is Brad's basis in the LLC interest at the end of the year?

Question

Quizplus · Accepted Answer

Brad's beginning capital account balance of $120,000 is his initial basis in the LLC. The recourse debt of $10,000 from the prior year is also included in his basis, making it $130,000 initially. However, the nonrecourse debt is not considered in computing the basis.

During the current year, Brad's share of net income of $200,000 increases his basis to $330,000 ($130,000 + $200,000). However, the non-deductible expenses reduce his basis by $2,000, making it $328,000.

At the end of the year, Brad's share of the recourse debt increased by $10,000 and the nonrecourse debt increased by $10,000, making Brad's total debt $50,000 ($20,000 + $30,000). Therefore, subtracting the debt from Brad's basis, we get Brad's ending basis as $249,200 ($328,000 - $50,000).

Hence, the answer is D.

Brad Is a 40% Member in the BB LLC