Harry, Hermione, and Ron formed an S corporation called Bumblebore. Harry and Hermione both contributed cash of $36,700 to get things started. Ron was a bit short on cash but had a parcel of land valued at $85,700 (basis of $73,400) that he decided to contribute. The land was encumbered by a $49,000 mortgage. What tax bases will each of the three have in his or her stock of Bumblebore?
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Harry, Hermione, and Ron formed an S corporation called Bumblebore. Harry and Hermione both contributed cash of $36,700 to get things started. Ron was a bit short on cash but had a parcel of land valued at $85,700 (basis of $73,400) that he decided to contribute. The land was encumbered by a $49,000 mortgage. What tax bases will each of the three have in his or her stock of Bumblebore?
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- Nicole and Alex get together to form a new corporation, TBTM Inc. (The Better Tax Museum, a competitor to The Tax Museum). Nicole contributes a building that has a tax basis of $700,000 and a fair market value of $850,000 in exchange for 75% of the stock and $100,000 in cash. Alex contributes $250,000 cash for 25% of the stock. A. How much taxable gain does Nicole have in the transaction? B. What basis does TBTM Corp take in the building? C. What basis does Nicole take in the stock received? D.[The following information applies to the questions displayed below.] Ron and Hermione formed Wizard Corporation on January 2. Ron contributed cash of $305,000 in return for 50 percent of the corporation's stock. Hermione contributed a building and land with the following fair market values and adjusted tax bases in return for 50 percent of the corporation's stock: (Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign.) Adjusted Tax FMV Basis $ 114,375 266,875 $ 381,250 $ 30,500 122,000 $ 152,500 Building Land Total To equalize the exchange, Wizard Corporation paid Hermione $76,250 in addition to her stock. Assume Hermione's adjusted tax basis in the land was $381,250. i. What adjusted tax basis does Wizard Corporation take in the land and building received from Hermione? Land Building Adjusted tax basis $ 53,375Allen, Barry, and Carl are incorporating their real estate sales partnership, which will become the ABC Corporation. Allen will contribute a building with a basis of $25,000 and a fair market value of $50,000 in return for 500 shares. Barry and Carl will each contribute $50,000 cash for 500 shares each. To retain the services of their top sales associate, Drake, they will provide 500 shares to him in return for his services. Explain the tax consequences of these transactions for each shareholder, and the corporation.
- [The following information applies to the questions displayed below.] Ron and Hermione formed Wizard Corporation on January 2. Ron contributed cash of $205,000 in return for 50 percent of the corporation's stock. Hermione contributed a building and land with the following fair market values and adjusted tax bases in return for 50 percent of the corporation's stock: (Leave no answer blank. Enter zero if applicable. Negative amount should be indicated by a minus sign.) Building Land Total FMV $ 76,875 179,375 $ 256,250 To equalize the exchange, Wizard Corporation paid Hermione $51,250 in addition to her stock. Gain or loss realized Adjusted Tax Basis $ 20,500 82,000 $ 102,500 :. What amount of gain or loss does Hermione realize on the formation of the corporation? What amount, if any, does she recognize? $Paula, chis Dave, unrelated individuals own 30 shares, 30 shares, and 40 shares respectively in Blue Corp. Blue Corp. has 100 shares outstanding and earning and profits of $6,000,000. Blue Corp. Redeems 20 shares of Dave’s stock for $800,000. Dave paid $600,000 for his 40 shares. What are the tax consequences to Dave? What result, if instead Chris was Dave’s father?Donald and Melania agree to go into business together. Donald will contribute a building with a FMV of $600,000 and a tax basis of $200,000 in return for 50 percent of the stock in the corporation. The corporation will assume a $300,000 mortgage on the building. Melania will contribute $300,000 cash in return for 50% of the stock of the corporation. How much gain, if any, does Donald recognize on the transfer of his building assuming the transaction qualifies under IRC Section 351?
- What Constitutes Income (LO. 1) Two Sisters is a partnership that owns and operates a farm. During the current year, the partnership raised and harvested hay at a cost of $20,000. It then traded half the hay for quarter horse breeding stock-young horses worth $30,000. Two Sisters fed the remainder of the hay to the horses, which were worth $50,000 at the end of the year. a. What is the tax consequence of the exchange? A of $ b. What amount can they deduct as current operating expenses from these transactions during the current year?: c. What is the basis of the horses at year-end? d. The partnership has income of $ from these transactions during the current year.Mr. Young operates a photography studio as a sole proprietorship. His average annual income from the business is $100,000. Because Mr. Young does not need the entire cash flow for personal consumption, he is considering incorporating the business. He will work as a corporate employee for a $40,000 annual salary, and the corporation will accumulate its after-tax income to fund future business expansion. For purposes of this case, assume that Mr. Young's marginal income tax rate is 32 percent and ignore any employment tax consequences. a. Assuming Mr. Young's sole proprietorship does not qualify for the QBI deduction, by how much would Mr. Young's annual tax burden increase or decrease by incorporating? b. Assuming Mr. Young's sole proprietorship qualifies for the 20% QBI deduction, by how much would Mr. Young's annual tax burden increase or decrease by incorporating? Complete this question by entering your answers in the tabs below. Required A Required B Assuming Mr. Young's sole…Mr. Young operates a photography studio as a sole proprietorship. His average annual income from the business is $100,000. Because Mr. Young does not need the entire cash flow for personal consumption, he is considering incorporating the business. He will work as a corporate employee for a $40,000 annual salary, and the corporation will accumulate its after-tax income to fund future business expansion. For purposes of this case, assume that Mr. Young’s marginal income tax rate is 32 percent and ignore any employment tax consequences. Required: Assuming Mr. Young's sole proprietorship does not qualify for the QBI deduction, by how much would Mr. Young's annual tax burden increase or decrease by incorporating? Assuming Mr. Young's sole proprietorship qualifies for the 20% QBI deduction, by how much would Mr. Young's annual tax burden increase or decrease by incorporating? Mr. Young's tax burden decrease or increase by ( ) NOTE: 25,400 is NOT the right answer.
- Betty joined Jim in forming DBJ Corporation. Betty contributed appreciated land for 90 percent of the stock in DBJ. Jim received 10 percent of the DBJ stock valued at $15,000. Determine Jim's tax consequences in each of the following alternative scenarios. (Leave no answer blank. Enter zero if applicable.) a. Jim received the stock in exchange for providing computer-related services for the corporation. What amount of income or gain does Jim recognize on the exchange? What is Jim's basis in the stock he received in the exchange? Income or gain recognized Jim's basis in the stockErica and Brett decide to form their new motorcycle business as an LLC. Each will receive an equal profits (loss) interest by contributing cash, property, or both. In addition to the members' contributions, their LLC will obtain a $46,000 nonrecourse loan from First Bank at the time it is formed. Brett contributes cash of $4,200 and a building he bought as a storefront for the motorcycles. The building has an FMV of $41,000 and an adjusted basis of $26,000 and is secured by a $31,000 nonrecourse mortgage that the LLC will assume. What is Brett's outside tax basis in his LLC interest? Multiple Choice O $38,500 O $40,200 O $33,500 $35,2006.Matthew and Venice decide to form their new retail business as an LLC. Each will receive an equal profits (loss) interest by contributing cash, property, or both. In addition to the members' contributions, their LLC will obtain a $35,000 nonrecourse loan from Simple Bank at the time it is formed. Matthew contributes cash of $4,000 and a building he bought as a storefront for the retail. The building has an FMV of $65,000 and an adjusted basis of $29,000 and is secured by a $34,000 nonrecourse mortgage that the LLC will assume. What is Matthew's outside tax basis in his LLC interest? Show computation.