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 $1,000 and a FMV of $1,400.
b. Contribution of property with a basis of $3,000 and FMV of $3,800. The stockholder also received $500 cash from the corporation as part of the stock transaction.
c. Contribution of property with a basis of $8,200 and a FMV of $12,500. The stockholder also received property with a FMV of $1,700 from the corporation as part of the stock transaction.
d. Contribution of a building with a FMV of $200,000, a mortgage (assumed by the corporation) of $100,000, and a basis of $125,000.
e. Contribution of a building with a FMV of $1,700,000, a mortgage (assumed by the corporation) of $1,000,000, and a basis of $635,000.
To determine the basis of stock in the hands of the shareholder in each of the given instances, we need to consider the 80% rule. The 80% rule states that the shareholder must own at least 80% of the stock after the contribution in order to be eligible for tax-free treatment.
Now let's go through each instance and calculate the basis of stock:
a. Contribution of property with a basis of $1,000 and a FMV of $1,400:
In this case, as long as the shareholder owns at least 80% of the stock after the contribution, the basis of the stock will be equal to the basis of the property contributed, which is $1,000.
b. Contribution of property with a basis of $3,000 and FMV of $3,800. The stockholder also received $500 cash from the corporation:
Here, we need to calculate the total value of the consideration received by the shareholder. In addition to the property, they received $500 cash. The total value of consideration is $3,800 (FMV of property) + $500 (cash) = $4,300. Since the shareholder owns at least 80% of the stock after the contribution, the basis of the stock will be the total value of consideration, which is $4,300.
c. Contribution of property with a basis of $8,200 and a FMV of $12,500. The stockholder also received property with a FMV of $1,700:
Similar to the previous case, we need to calculate the total value of consideration. In this instance, the property contributed has a basis of $8,200 and a FMV of $12,500. Additionally, the shareholder received property with a FMV of $1,700. Therefore, the total value of consideration is $12,500 (FMV of contributed property) + $1,700 (FMV of received property) = $14,200. Since the shareholder owns at least 80% of the stock after the contribution, the basis of the stock will be $14,200.
d. Contribution of a building with a FMV of $200,000, a mortgage (assumed by the corporation) of $100,000, and a basis of $125,000:
In this case, we need to consider the net value of the property contributed. The net value is calculated by subtracting the mortgage assumed by the corporation from the FMV of the property. So, the net value is $200,000 (FMV of building) - $100,000 (mortgage) = $100,000. As long as the shareholder owns at least 80% of the stock after the contribution, the basis of the stock will be the net value, which is $100,000.
e. Contribution of a building with a FMV of $1,700,000, a mortgage (assumed by the corporation) of $1,000,000, and a basis of $635,000:
Similarly to the previous instance, we need to calculate the net value of the property contributed. The net value is obtained by subtracting the mortgage from the FMV of the property, which gives us $1,700,000 (FMV of building) - $1,000,000 (mortgage) = $700,000. Given that the shareholder owns at least 80% of the stock after the contribution, the basis of the stock will be the net value, which is $700,000.
In summary:
a. Basis of stock = $1,000
b. Basis of stock = $4,300
c. Basis of stock = $14,200
d. Basis of stock = $100,000
e. Basis of stock = $700,000