Erica and Brett Decide to Form Their New Motorcycle Business

Multiple Choice

Erica and Brett decide to form their new motorcycle business as a LLC. Each will receive an equal profits (loss) interest by contributing cash, property, or both. In addition to the members' contributions, their LLC will obtain a $50,000 nonrecourse loan from First Bank at the time it is formed. Brett contributes cash of $5,000 and a building he bought as a storefront for the motorcycles. The building has a FMV of $45,000, an adjusted basis of $30,000, and is secured by a $35,000 nonrecourse mortgage that the LLC will assume. What is Brett's outside tax basis in his LLC interest?

A) $37,500
B) $40,000
C) $42,500
D) $45,000