If the distribution is a liquidating distribution, the distributee member takes a basis in distributed property equal to the distributee member’s outside basis.If the distribution is not a liquidating distribution, the distributee member takes a basis in the distributed property equal to the property’s inside basis. Margot, Sarah, and Kristalia are equal members of Marali LLC, a tax partnership.
Sabeel takes a 0,000 outside basis in his 41 percent interest in Saio LLC, and Fabio takes a 0,000 outside basis in his 59 percent interest in Saio LLC. At the time of contribution, Worn Warehouse had a 0,000 built-in gain (0,000 fair market value minus 0,000 basis).
If Saio LLC were to sell Worn Warehouse immediately after contribution and recognize the 0,000 of built-in gain, it would allocate the entire amount of gain to Sabeel, the person who contributed it.
The diagram represents Saio LLC’s tax situation after formation.
The basis the person had in the property will become the basis the tax partnership takes in the property and the basis the person will take in the tax partnership interest.
The tax rules also provide that any built-in gain or loss that exists at the time of contribution of property, when triggered, must be allocated to the person who contributed the property to the tax partnership. Sabeel contributes Worn Warehouse and Fabio contributes 0,000 of cash to form Saio LLC, a tax partnership.