Problem - Jack and Bill started the Scoop du Jour, LLC in 2014. The LLC is taxed as a partnership. Jack contributed property with $45,000 FMV and $37,000 basis. Bill contributed $45,000 cash. They each own 50% and share profits and losses 50/50.The activity for the partnership in 2014 is as follows:
Ordinary loss 45,450
Rental income 7,500
Charitable contributions 2,000
Other separately-stated expenses 7,600
Cash distribution to Bill 35,000
The business acquired equipment and machinery. This property was financed with a loan from Jack for 17,000 and 25,000 line of credit from the bank. The debt balances did not change all year. The line of credit is nonrecourse debt (for at-risk loss limitation).Hint: liabilities are allocated based on the ownership percentage, generally. However, if the debt is from a partner or a partner personally guarantees the debt, it is allocated to him 100%.At the beginning of 2015 Jack sold his partnership interest to Ann for $50,000. Jack's loan was also repaid.
Required:
1. Prepare each partner's outside basis in their respective partnership interest as of 12/31/14.
2. Calculate Jack's gain or loss on the sale of his partnership interest. The character of the gain or loss is not required.
3. Answer the following questions: a) Was there a gain or loss on Jack's contribution of the property? If so, how much? b) Were there distributions in excess of basis? If so, how much?c) Are there any suspended losses due to basis limitations? Who and how much?
4. Are there suspended losses due to at-risk limitations? Who and how much?