Hello, can someone help with the following problem? Thank you, Determine the bas
ID: 2602797 • Letter: H
Question
Hello, can someone help with the following problem? Thank you,
Determine the basis of stock in the hands of the shareholder in each of the following instances.
Assume that the 80% rule is met in all cases.
a. Contribution of property with a basis of $2,000 and a FMV of $2,800.
b. Contribution of property with a basis of $6,000 and a FMV of $7,600. The stockholder
also received $1,000 cash from the corporation as part of the stock transaction.
c. Contribution of property with a basis of $16,400 and a FMV of $25,000. The stockholder
also received property with a FMV of $3,400 from the corporation as part of the stock
transaction.
d. Contribution of a building with a FMV of $400,000, a mortgage (assumed by the
corporation) of $200,000, and a basis of $250,000.
e. Contribution of a building with a FMV of $3,400,000, a mortgage (assumed by the
corporation) of $2,000,000, and a basis of $1,270,000.
Explanation / Answer
Answer:
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 (including relief of liabilities). The answers to each item are:
a. $2,000
b. The shareholder will report a gain of $1,000 (lesser of the total gain of $1,600 and the FMV of the property received of $1,000). The shareholder will have basis in stock of $6,000 + $1,000 -$1,000 = $6,000.
c. Similar to the above question. The shareholder will have a gain of $3,400. The shareholder’s basis in the stock will be $16,400 + $3,400 - $3,400 = $16,400.
d. Shareholder will not report a gain because the debt is not in excess of basis. The shareholder’s basis in the stock will be $250,000 – $200,000 = $50,000.
e. Shareholder will report a gain equal to the excess of assumed debt over the basis in the property. Thus, the shareholder gain is $730,000. The shareholder’s basis in the stock will be $1,270,000 + $730,000 - $2,000,000 = $0.
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