Question

a building 56. Courtney Vile and Kurt Barnett form Radical Inc. Courtney contributes a build that has a fair market value of $150,000 in exchange for 50 shares of Radical worth $50,000. The building has an adjusted basis of $120,000 and is subject to a mortgage of $100,000. Kurt contributes inventory that has a fair market value of $50,000 in exchange for 50 shares of Radical. The inventory has a basis to Kurt of $55,000. What tax consequences to Courtney and Kurt? What basis will Radical have in the property received

Answer 1

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Answer are highlighted in yellow: Format and naming is not available, can be slightly different: Solution: As section 351 is applicable here and business debt is less than the tax basis, therefore, NO gain or loss will be recognized. For 100% stock: Courtney -120000 50000 100000 30,000 Kurt -55000 50000 Tax basis FMV of Stock received Mortgage/Liability assmued 1)a Realized Gain/-loss $ $ -5,000 1)b Recognized gain per section 351 $ 0 $ 0 Stock basis $ 20,000 $ 55,000 2)b Redical (Corporate) basis in asset: (Carryover basis of shareholder + any gain recongized) 120000 Building Inventory $ 55,000 or $50,000