Celeste contributed business-related assets valued at $250,000(basis of $100,000) in exchange for her 50% interest in the

Question:

Celeste contributed business-related assets valued at $250,000(basis of $100,000) in exchange for her 50% interest in the Celestine Partnership. Ernestine contributed land and a building valued at $400,000(basis of $200,000) in exchange for the remaining 50% interest.

Ernestine’s property was encumbered by a qualified nonrecourse debt of $150, 000, which was assumed by the partnership. The partnership reports the following income and expenses for the current tax year:

Sales = 350,000

Utilities, salaries, and other operating expenses = $190,000

Qualified dividend income = $6,000

Tax-exempt interest income = $2,000

Charitable contributions = $1000

Distribution to Celeste = $20,000

Distribution to Ernestine = $16,000

a. How would Celestine's ending liabilities be treated if they formed an LLC, instead of a general partnership?

b. How would Celestine's basis and amount at risk be different?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their... Partnership
A legal form of business operation between two or more individuals who share management and profits. A Written agreement between two or more individuals who join as partners to form and carry on a for-profit business. Among other things, it states...