wk 5-2 Determine the basis of stock in the hands of the shareholder in each of...

wk 5-2

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.

Contribution of property with a basis of $2,300 and an FMV of $2,700.
Contribution of property with a basis of $5,600 and an FMV of $7,960. The stockholder also received $1,800 cash from the corporation as part of the stock transaction.
Contribution of property with a basis of $9,500 and an FMV of $15,100. The stockholder also received property with an FMV of $3,000 from the corporation as part of the stock transaction.
Contribution of a building with an FMV of $265,000, a mortgage (assumed by the corporation) of $165,000, and a basis of $255,000.
Contribution of a building with an FMV of $1,830,000, a mortgage (assumed by the corporation) of $1,130,000, and a basis of $700,000.


a.	Shareholder’s basis in stock
b.	Shareholder’s basis in stock
c.	Shareholder’s basis in stock
d.	Shareholder’s basis in stock
e.	Shareholder’s basis in stock

Solutions

Expert Solution

Determination of Basis of Stock in the hands of Shareholder in each of the following instances
(Assume 80% rule is met in all the cases)

The basis of the stock in the hands of shareholders is equal to the basis of the property contributed, plus any gain recognized minus any boot received (including relief of liabilities)

a) Contribution of property with a basis of $2,300 and a FMV of $2,700.
The basis of stock is the lower of the $2,300 and $2,700
Hence the basis of the stock would be $2,300.



b) Contribution of property with a basis of $5,600 and a FMV of $7,960. The stockholder also received $1,800 cash from operations as part of stock transaction.
The difference between the FMV and the Basis is to be considered as Gain on Transfer which is $2,360 ($7,960 - $5600)
Gain in the hands of shareholders will be the lower of gain on transfer or cash received which is $1,800 ( $2,360 and $ 1,800)
Hence the basis of stock in the hands of shareholders is $5600+$1,800-$1800 = $ 5,600.



c) Contribution of property with a basis of $9,500 and a FMV of $15,100. The stockholder also received property with an FMV of $3,000 from the corporation as part of stock transaction.
The difference between the FMV and the Basis is to be considered as Gain on Transfer which is $5,600 ($15,100- $9,500)
Gain in the hands of shareholders will be the lower of gain on transfer or boot received which is $ 3,000 ($5,600 and $3,000)
Hence the basis of stock in the hands of shareholders is $9,500+$3,000-$3,000 = $ 9,500



d) Contribution of building with an FMV of $265,000, a mortgage (assumed by the corporation) of $165,000 and a basis of $255,000.
Mortgage (assumed by the corporation) is $165,000
Shareholder is assuming only 62.26% of FMV in the form of mortgage (1,65000/265,000)
Hence no gain is realized in this case as the mortgage is not over the basis.
The basis would be $255,000 - $165,000 = $90,000.



e) Contribution of building with an FMV of $1,830,000 a mortgage (assumed by the corporation) of $1,130,000 and a basis of $7,00,000.
Mortgage (assumed by the corporation) is $11,30000
Shareholder is assuming only 61.75% of FMV in the form of mortgage (11,30,000/18,30,000)
Hence gain is realized in this case as the mortgage is over the basis.
Shareholders Gain = Extra of assumed mortgage over the basis in the property which is $11,30,000-7,00,000 = $4,30,000.
Hence the basis of stock in the hands of shareholders is $7,00,000+$4,30,000-$11,30,000 = $0

ekkarill92 answered 1 year ago

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