Share
Explore BrainMass

# Basis for property owned by person and corporation, and tax

I have this problem for a practice exam, and am stumped. For the corporation's basis of \$40,000, since corporations don't get stepped-up basis, however I am not sure if that is right. Parts b-d I really don't have a clue (was eric's basis \$100,000 or \$125,000?), and would appreciate help from a qualified professional.

Problem: Eric transferred property with a basis of \$100,000 and a fair market value of \$125,000 to his 100% controlled corporation. The property was subject to a note payable to the bank for \$60,000. Compute the following:

a. The corporation's basis in the property.

b. Eric's basis in the stock.

c. When the corporation was in the 22% marginal tax bracket, the corporation sold the property contributed by Eric for \$125,000 and distributed to Eric an amount equal to the after tax gain. Eric was in the 20% marginal tax bracket. Compute the total tax on the gain and distribution.

d. What is the corporation's basis in the property assuming Eric's basis was \$100,000 and its fair market value was \$80,000 at the time that Eric made the transfer for stock?

#### Solution Summary

This solution illustrates how to compute the basis for property owned by person and corporation, and total tax.

\$2.19