Asked by Ashia Arnold on May 01, 2024
Verified
Determine the basis of stock in the hands of the shareholder,the basis to the corporation of the contributed property,and the gain,if any,to the shareholder in each of the following independent cases.In all cases,assume that the 80% test is met.
a.Pierre contributes a vehicle with a FMV of $6,000 and basis of $8,000.
b.Marcus contributes land with a FMV of $500,000,basis of $300,000,and debt of $250,000.
c.Same as b.except Marcus also receives cash of $25,000.
d.Patricia contributes an apartment building with a FMV of $200,000,basis of $50,000,and debt of $125,000.
Basis of Stock
The original value of an asset for tax purposes, usually the purchase price, which is used to calculate capital gains or losses when the stock is sold.
Contributed Property
Property or assets given to a partnership or corporation by an owner or shareholder, often impacting the basis of the investment.
Shareholder
An individual or entity that owns shares in a corporation and therefore has ownership interest in the company.
- Comprehend the taxation implications of asset donations to companies and learn how to calculate the basis of the property contributed.
Verified Answer
ZK
Zybrea KnightMay 06, 2024
Final Answer :
a.Shareholder basis in stock = $8,000;basis of asset to corporation = $8,000;gain to shareholder = $0.
b.Shareholder basis in stock = $50,000 ($300,000 original basis minus $250,000 liability relief);basis of asset to corporation = $300,000;gain to shareholder = $0.
c.Shareholder basis in stock = $50,000 ($300,000 original basis,minus $250,000 liability relief,minus $25,000 cash received,plus $25,000 gain recognized);basis of both assets (the land and the cash)to corporation = $325,000;gain to shareholder = $25,000.
d.Shareholder basis in stock = $0;basis of asset to corporation = $125,000;gain to shareholder = $75,000.
The transferor records a gain if either (1)property subject to a liability is transferred and the liability is in excess of the property's basis or (2)if the transferor receives stock plus other property.In the second case,the gain is equal to the lower of the FMV of the property received or the implied gain on the property transferred to the corporation.
The basis of the stock in the hands of the shareholder is equal to the basis of the property contributed,plus any gain recognized,minus any boot received (boot includes relief of liability).
The basis to the corporate entity of the cash or property received is equal to the basis in the hands of the shareholder plus any gain recognized by the shareholder.
b.Shareholder basis in stock = $50,000 ($300,000 original basis minus $250,000 liability relief);basis of asset to corporation = $300,000;gain to shareholder = $0.
c.Shareholder basis in stock = $50,000 ($300,000 original basis,minus $250,000 liability relief,minus $25,000 cash received,plus $25,000 gain recognized);basis of both assets (the land and the cash)to corporation = $325,000;gain to shareholder = $25,000.
d.Shareholder basis in stock = $0;basis of asset to corporation = $125,000;gain to shareholder = $75,000.
The transferor records a gain if either (1)property subject to a liability is transferred and the liability is in excess of the property's basis or (2)if the transferor receives stock plus other property.In the second case,the gain is equal to the lower of the FMV of the property received or the implied gain on the property transferred to the corporation.
The basis of the stock in the hands of the shareholder is equal to the basis of the property contributed,plus any gain recognized,minus any boot received (boot includes relief of liability).
The basis to the corporate entity of the cash or property received is equal to the basis in the hands of the shareholder plus any gain recognized by the shareholder.
Learning Objectives
- Comprehend the taxation implications of asset donations to companies and learn how to calculate the basis of the property contributed.