During the Current Tax Year, Jordan and Whitney Each Contributed

Multiple Choice

During the current tax year, Jordan and Whitney each contributed $50,000 to form the J&W LLC. Each member has a 50% interest in LLC capital, profits, and losses, except that depreciation expense is allocated 40% to Jordan and 60% to Whitney. During the first year, the LLC reported income (before depreciation expense) of $20,000 and had depreciation expense of $10,000. The LLC incurred recourse debt (that was personally guaranteed by both of the LLC members) of $60,000. Partnership assets are $170,000 at the end of the year. Under the constructive liquidation scenario, how is the recourse debt allocated to Jordan and Whitney?

A) All recourse debt is allocated to Whitney because she has the highest percentage allocation of depreciation expense.
B) The recourse debt is shared equally ($30,000 each) by Jordan and Whitney.
C) The recourse debt is allocated $36,000 to Whitney and $24,000 to Jordan.
D) The recourse debt is allocated $31,000 to Whitney and $29,000 to Jordan.
E) The recourse debt is not allocated to the LLC members.