Two years ago, Marcus contributed land with a basis of $6,000 and a fair market value of $20,000 in exchange for a
30% interest in the MNO LLC. This year when the value was $25,000, that property was distributed to Jamal whose basis in the LLC interest was $50,000 before the distribution. Marcus recognizes a gain of $14,000 and increases his basis in his LLC interest by that same amount; Jamal takes a $20,000 basis in the distributed property.

Question

Quizplus · Accepted Answer

Marcus's basis in the land was $6,000, and he contributed it to the LLC two years ago when it was worth $20,000. This means that he has a $14,000 gain on the land. When the land was distributed to Jamal, Marcus's basis in his LLC interest increased by $14,000, and Jamal took a $20,000 basis in the land.

Two Years Ago, Marcus Contributed Land with a Basis of $6,000