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reesespowerade
reesespowerade
17.03.2020 • 
Business

Ron and Hermione formed Wizard Corporation on January 2. Ron contributed cash of $200,000 in return for 50 percent of the corporation’s stock. Hermione contributed a building and land with the following fair market values and adjusted bases in return for 50 percent of the corporation’s stock:

FMV Tax adjusted Basis
Building $75,000 $20,000
Land 175,000 80,000
Total $250,000 $100,000

To equalize the exchange, Wizard Corporation paid Hermione $50,000 in addition to her stock.
a. What amount of gain or loss does Ron realize on the formation of the corporation? What amount, if any, does he
recognize?
b. What is Ron's tax basis in the stock he receives in return for his contribution of property to the corporation?
c. What amount of gain or loss does Hermione realize on the formation of the corporation? What amount, if any, does she recognize?
d. What is Hermione's tax basis in the stock she receives in return for her contribution of property to the corporation?
e. What tax-adjusted basis does Wizard Corporation take in the land and building received from Hermione?
Assume Hermione's tax-adjusted basis in the land was $200,000.
f. What amount of gain or loss does Hermione realize on the formation of the corporation? What amount, if any, does she recognize?
g. What tax-adjusted basis does Wizard Corporation take in the land and building received from Hermione? Assume Hermione's tax-adjusted basis in the land was $250,000.
h. What amount of gain or loss does Hermione realize on the formation of the corporation? What amount, if any, does she recognize?
i. What tax-adjusted basis does Wizard Corporation take in the land and building received from Hermione?
j. What election can Hermione and Wizard Corporation make to allow Wizard Corporation to take a carryover basis in the land?

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