Question

Phillip and Evans form a business entity with each contributing the following property.

Phillip Evans Cash $600,000 Land $600,000 * * Fair market value; adjusted basis is $200,000.

Three months later, the land is sold for $652,000 because of unexpected zoning problems. The proceeds are to be applied toward the purchase of another parcel of land to be used for real estate development.

If an amount is zero, enter "0".

a. If the entity is a partnership, what is the tax consequence as a result of the contribution of property to the partnership?

Regarding the contribution, Evans has a realized gain of $, of which $is recognized. Regarding the sale of land, the recognized gain is $, of which $ is allocated to Phillip and $ is allocated to Evans.

b. If the entity is an S corporation, what is the tax consequence as a result of the contribution of property to the corporation?

Regarding the contribution, Evans has a realized gain of $, of which $is recognized. Regarding the sale of land, the recognized gain is $, of which $ is allocated to Phillip and $ is allocated to Evans.

c. If the entity is a C corporation, what is the tax consequence as a result of the contribution of property to the corporation?

Regarding the contribution, Evans has a realized gain of $, of which $is recognized. Regarding the sale of land, the recognized gain is $, of which $ is allocated to Phillip and $ is allocated to Evans.

Answer 1

Part A

There is no gain or loss that is recognized on the contribution of property to a partnership.

Evans’ realized gain = amount realized –adjusted basis = $600,000-$200,000= $400,000

Evans’ recognized gain = $0    (No gain is recognized)

Phillip’s partnership interest basis = $600,000

Evan’s partnership interest basis = $200,000

Post contribution gain on sale of land = recognized gain on the sale of the land   - Precontribution gain = 452000-400000 = $52000

Recognized gain allocated to Phillip = (52000*50%) = $26000

Recognized gain allocated to Evan = 400000+(52000*50%) = 426000

Part B

There is no gain or loss that is recognized on the contribution of property to an S corporation

Evans’ realized gain = amount realized –adjusted basis = $600,000-$200,000= $400,000

Evans’ recognized gain = $0    (No gain is recognized)

Phillip’s stock basis = $600,000

Evan’s stock basis = $200,000

Recognized gain on sale of land = amount realized –adjusted basis = $652,000-$200,000= $452,000

Recognized gain allocated to Phillip = (452000*50%) = $226000

Recognized gain allocated to Evan = (452000*50%)= $226000

Part C

There is no gain or loss that is recognized on the contribution of property to an C corporation

Evans’ realized gain = amount realized –adjusted basis = $600,000-$200,000= $400,000

Evans’ recognized gain = $0    (No gain is recognized)

Phillip’s stock basis = $600,000

Evan’s stock basis = $200,000

Recognized gain on sale of land = amount realized –adjusted basis = $652,000-$200,000= $452,000

Recognized gain allocated to Phillip = $0

Recognized gain allocated to Evan = $0