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 $13,000. This includes his $3,100 one-fourth share of the LLC's debt. Bob's 704(b) capital account is $20,000. If Tom bought Bob's LLC interest for $23,000, what would Tom's outside basis be in Freedom, LLC?
A. 23,000

B. 26,100

C. 19,900

D. 13,000

Answer 1

Answer:

Option B is correct.

Tom's outside basis be in Freedom,LLC=$26,100

Explanation:

Option B is correct.

Amount Paid by Tom for buying Bob's LLC interest=$23,000

Tom's Share of LLC debt= $3,100

Tom's outside basis be in Freedom,LLC= Amount Paid by Tom for buying Bob's LLC interest + Tom's Share of LLC debt

Tom's outside basis be in Freedom,LLC= $23,000+$3,100

Tom's outside basis be in Freedom,LLC=$26,100