Asked by Alexis Klein on Jun 05, 2024
Verified
Pricilla formed a corporation and owns all of the stock.She contributed property with a FMV of $60,000 and a basis of $55,000 and she received $10,000 cash from the corporation.Pricilla's taxable gain is:
A) $0.
B) $5,000.
C) $10,000.
D) $60,000.
FMV
Fair Market Value, the price that property would sell for on the open market.
Basis
The amount of investment in property for tax purposes; used to determine the gain or loss on the sale, exchange, or disposal of the property.
Taxable Gain
The profit arising from the sale or exchange of an asset that is subject to income tax.
- Acquire knowledge on the idea of stock basis and the way in which a corporation's cash distributions influence a shareholder's basis.
Verified Answer
DC
DANTE CUEVASJun 10, 2024
Final Answer :
B
Explanation :
When Pricilla contributed the property to the corporation, the corporation issued her stock and gave her cash in exchange for the property. This is considered a taxable event and Pricilla must recognize a gain on the difference between the fair market value of the property contributed ($60,000) and her basis in the property ($55,000), which is $5,000. Therefore, the taxable gain is $5,000.
Learning Objectives
- Acquire knowledge on the idea of stock basis and the way in which a corporation's cash distributions influence a shareholder's basis.