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Lecture 23

MGMT 133 Lecture Notes - Lecture 23: Tax Basis, Accounts Payable, Sole ProprietorshipExam


Department
Management
Course Code
MGMT 133
Professor
Theresa Aberle
Lecture
23

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Laurel contributed equipment worth $245,000, purchased 9 months ago for $271,000 cash and
used in her sole proprietorship, to Sand Creek LLC in exchange for a 25 percent profits and
capital interest in the LLC. Laurel agreed to guarantee all $17,300 of Sand Creek’s accounts
payable, but she did not guarantee any portion of the $122,500 nonrecourse mortgage securing
Sand Creek’s office building. Other than the accounts payable and mortgage, Sand Creek does
not owe any debts to other creditors.
a. What is Laurel’s initial tax basis in her LLC interest?
Tax basis: Cost of capital asset contributed + Accounts payable guaranteed + 25% share in
mortgage
318,925=271k+17,300+.25(122,500)
B. T/F Laurel’s holding period begins the day the LLC interest is acquired.
TRUE
c. What is Sand Creek’s initial basis in the contributed property?
271k
d. What is Sand Creek’s holding period in the contributed property?
Period of 9 months for which Laurel had been holding equipment
Alfonso began the year with a tax basis in his partnership interest of $31,000. His share of
partnership debt at the beginning and end of the year consists of $9,000 of recourse debt and
$4,000 of nonrecourse debt. During the year, he was allocated $47,000 of partnership ordinary
business loss. Alfonso does not materially participate in this partnership and he has $3,000 of
passive income from other sources.
a. How much of Alfonso’s loss is limited by his tax basis?
47k-31k=16k
b. How much of Alfonso’s loss is limited by his at-risk amount?
4k
c. How much of Alfonso’s loss is limited by the passive activity loss rules?
31k-4k=27k-3k = 24k
The partnership agreement of the G&P general partnership states that Gary will receive a
guaranteed payment of $14,500, and that Gary and Prudence will share the remaining profits or
losses in a 45/55 ratio. For year 1, the G&P partnership reports the following results:
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