Question

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?

Answer 1

Answer:

$19,500

Explanation:

Given that,

Bob's outside basis in Freedom, LLC, = $10,000

One-fourth share of the LLC's debt = $2,500

Bob's 704(b) capital account = $17,000

Tom bought Bob's LLC interest = $17,000

Tom's outside basis be in Freedom, LLC:

= Amount paid for interest + share of LLC’s Debt

= $17,000 + $2,500

= $19,500