In a Proportionate Liquidating Distribution of His 40% Interest in the RST

question 18

Essay

In a proportionate liquidating distribution of his 40% interest in the RST LLC, Stuart received cash ($100,000), land (basis of $60,000 and value of $90,000), and unrealized receivables (basis of $0 and value of $40,000). In addition, Stuart is relieved of his $80,000 share of the LLC's liabilities. Stuart's basis in RST (including his share of LLC liabilities) was $200,000 immediately prior to this distribution.
a. How much gain or loss does Stuart recognize on this distribution?
b. What is Stuart's basis in the receivables and land he receives in the distribution?

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Definitions:

Mechanic's Lien

A legal claim against a property for unpaid work or supplies, giving workers and suppliers a form of security for their investment.

Homeowner

An individual who owns and resides in a house or property.

Contractor

An individual or company that enters into a contract to perform services or provide goods for another party in exchange for compensation.

Subcontractors

Specialized professionals or companies hired by the main contractor to perform specific tasks as part of a larger project.