Nicholas Is a 25% Owner in the DDBN LLC (A

question 74

Multiple Choice

Nicholas is a 25% owner in the DDBN LLC (a calendar year entity) . At the end of the last tax year, Nicholas's basis in his interest was $50,000, including his $20,000 share of LLC liabilities. On July 1 of the current tax year, Nicholas sells his LLC interest to Anna for $80,000 cash. In addition, Anna assumes Nicholas's share of LLC liabilities, which, at that date, was $15,000. During the current tax year, DDBN's taxable income is $120,000 (earned evenly during the year and allocated using the monthly proration method) . Nicholas's share of the LLC's unrealized receivables is valued at $6,000 ($0 basis) . At the sale date, what is Nicholas's basis in his LLC interest, how much gain or loss must he recognize, and what is the character of the gain or loss?

• A) $45,000 basis; $6,000 ordinary income; $44,000 capital gain.
• B) $60,000 basis; $6,000 ordinary income; $29,000 capital gain.
• C) $60,000 basis; $0 ordinary income; $35,000 capital gain.
• D) $75,000 basis; $0 ordinary income; $20,000 capital gain.
• E) $75,000 basis; $6,000 ordinary income; $14,000 capital gain.

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Definitions:

Credited

A bookkeeping record that augments liabilities or equity, or diminishes an asset or expense.

Assets

Assets are resources owned by a business or individual that have economic value and can be converted into cash or provide future benefits.

Decreased

A reduction in size, number, or amount of something from a previous level.

Credit

A financial agreement where a borrower receives something of value now and agrees to repay the lender at a future date.