Moustapha and Ava have owned X Corp as equal shareholders for the last five years. Due to unexpected growth, X Corp needs an additional storage facility. In the current year, Moustapha contributes a parcel of land to X Corp that will be used to build this facility. Moustapha purchased the land 10 years ago for $10,000 and has held it as an investment. The land has a fair market value at the time of contribution of $100,000. Moustapha will receive additional stock in exchange for the land so that after the land contribution he will own 70% of the stock of X Corp. What are the tax consequences to Moustapha and Ava of the contribution of land? O Moustapha recognizes $90.000 of capital gain and Ava recognizes no gain O The entire $100,000 fair market value of the land is ordinary income to Moustapha: Ava has no income O Moustapha must recognize half of the $90,000 of realized gain and Ava recognizes the other half O Neither Moustapha nor Ava has any tax conscquences upon the land contribution because they together own at least 80% of the stock

Moustapha and Ava have owned X Corp as equal shareholders for the last five years. Due to unexpected growth, X Corp needs an additional storage facility. In the current year, Moustapha contributes a parcel of land to X Corp that will be used to build this facility. Moustapha purchased the land 10 years ago for $10,000 and has held it as an investment. The land has a fair market value at the time of contribution of $100,000. Moustapha will receive additional stock in exchange for the land so that after the land contribution he will own 70% of the stock of X Corp. What are the tax consequences to Moustapha and Ava of the contribution of land? O Moustapha recognizes $90.000 of capital gain and Ava recognizes no gain O The entire $100,000 fair market value of the land is ordinary income to Moustapha: Ava has no income O Moustapha must recognize half of the $90,000 of realized gain and Ava recognizes the other half O Neither Moustapha nor Ava has any tax conscquences upon the land contribution because they together own at least 80% of the stock

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter2: Income Tax Concepts

Section: Chapter Questions

Problem 64IIP

See similar textbooks

Similar questions

LeBron, Dennis, and Susan formed the Bar T LLC at the beginning of the current year. All of its members have calendar year ends. LeBron and Dennis each contributed $200,000 and Susan transferred several acres of agricultural land she had purchased two years earlier to the LLC. The land had a tax basis of $50,000 and was appraised at $300,000. The land was also encumbered with a $100,000 nonrecourse mortgage (i.e., qualified nonrecourse financing) for which no one was personally liable. The members plan to use the land and cash to begin a cattle-feeding operation. Susan will work full time operating the business, but LeBron and Dennis will devote less than two days per year to the operation. All three members agree to split profits and losses equally. At the end of the first year, Bar T had accumulated $40,000 of accounts payable jointly guaranteed by LeBron and Dennis and had made a $9,000 principal payment on the mortgage. None of the members have passive income from other sources…
In the current year, Dan, Jay, and Erin form Zeus Corporation. Dan contributes land (a capital asset) having a $75,000 FMV (fair market value) in exchange for 85 shares of Zeus stock. He purchased the land three years ago for $100,000. Jay contributes machinery (Sec. 1231 property purchased four years ago) having a $115,000 adjusted basis and a $45,000 FMV in exchange for 75 shares of Zeus stock. Erin contributes services worth $30,000 in exchange for 10 shares of Zeus stock. A. What is the amount of Dan's recognized gain or loss? b.What is Dan's basis in his Zeus shares? When does his holding period begin? c.What is the amount of Jay's recognized gain or loss? d. What is Jay's basis in his Zeus shares? When does his holding period begin? e.How much income, if any, does Erin recognize? f.What is Erin's basis in her Zeus shares? When does her holding period begin? g. What is Zeus's basis in the land and the machinery? When does its holding period begin? How…
During the current year, TLI Corporation sells a tract of land for $90,000. The sale is made to Sophie, TLI Corporation's sole shareholder. TLI Corporation originally purchased the land five years earlier for $121,000. Read the requirements. Requirement a. What is the amount of gain or loss that TLI Corporation will recognize on the sale during the current year? First, calculate the gain or loss realized and then calculate the gain or loss recognized in the current year. (For a gain or loss with a zero value, enter $0 and select N/A.) Amount Gain or loss Gain or loss realized Gain or loss recognized Requirements a. What is the amount of gain or loss that TLI Corporation will recognize on the sale during the current year? b. Assume that in the following year, Sophie sells the land for $111,000. What is the amount of gain or loss Sophie will recognize? What are the tax consequences to TLI Corporation upon the subsequent sale by Sophie? c. Assume that in the following year, Sophie sells…
In the current year, John, Tara, and Sean form Corporation. John contributes land (a capital asset) having a $120,000 FMV purchased as an investment four years ago for $10,000 in exchange for 120 shares of Ash stock. Tara contributes machinery (Sec. 1231 property) purchased four years ago and used in her business in exchange for 120 shares of Ash stock. Immediately before the exchange, the machinery had a $130,000 adjusted basis and a 120,000 FMV. Sean contributes services worth $70,000 in exchange for 70 shares of Ash stock. a.What is the amount of John's recognized gain or loss? b.What is John's basis in his Ash shares? When does his holding period begin? c.What is the amount of Tara's recognized gain or loss? d.What is Tara's basis in her Ash shares? When does her holding period begin? e.How much income, if any, does Sean recognize? f.What is Sean's basis in his Ash shares? When does his holding period begin? g.What is Ash's basis in the land and the machinery? When…
Ansel purchased raw land three years ago for $200,000 to hold as an investment. After watching the value of the land drop to $150,000, he decided to contribute it to Mountainside Developers LLC in exchange for a 5 percent capital and profits interest. Mountainside plans to develop the property and will trat it as inventory, like all the other real estate it holds. If Mountainside sells the property for $150,000 after holding it for one year, how much gain or loss does it recognize, and what is the character of the gain or loss? If Mountainside sells the property for $125,000 after holding it for two years, how much gain or loss does it recognize, and what is the character of the gain or loss? If Mountainside sells the property for $150,000 after holding it for six years, how much gain or loss does it recognize, and what is the character of the gain or loss?
Vogel, Inc., an S corporation for five years, distributes a tract of land held as an investment to Jamari, its majority shareholder. The land was purchased for $275,800 ten years ago and is currently worth $689,500. If an amount is zero, enter, "0". a. As a result of the distribution, what is Vogel's recognized capital gain? How much is reported as a distribution to shareholders? Vogel recognizes a capital gain ✔ of $ which is reported on Schedule K, and a proportionate share of it passes through to the shareholders ✔. Jamari would take a $ b. What is the net effect of the distribution on Vogel's AAA? basis in the land. There is a net decrease of $ on Vogel's AAA. c. Assume instead that the land had been purchased for $689,500 and was currently worth $275,800. How much would Vogel recognize as a loss? What would be the net effect on Vogel's AAA? What would be Jamari's basis in the land? Vogel recognizes a loss $ 0and the net effect on Vogel's AAA is a decrease ✓ of $ take a basis in…
n 2000, Ms. Ennis, a head of household, contributed $76,000 in exchange for 760 shares of Seta stock. Seta is a qualified small business. This year, Ms. Ennis sold all 760 shares for $124,000. Her only other investment income was an $7,700 long-term capital gain from the sale of land. Her taxable income before consideration of her two capital transactions is $549,000. Assume the taxable year is 2022. Use Individual tax rate schedules and Tax rates for capital gains and qualified dividends. Compute Ms. Ennis’s income tax and Medicare contribution tax for the year. How would the computation change if Ms. Ennis acquired the Seta stock in 2019 instead of 2000?
Bobert transfers a rental office building (current fair market value of $45,000) that he purchased 20 years ago for $60,000. Its current basis is $15,000 after recognition of $45,000 in depreciation expense.The corporation assumes the $20,000 balance on the original mortgage and Bobert receives 25 shares of stock from the corporation in the exchange. How much gain does Bobert recognize? Show work
In 2023, Malcolm decided to sell all of the business assets he had been using in his sole proprietorship. He had owned and used the assets in his business for several years. The business sale agreement specified that $280,000 of the $400,000 total sales price was allocable to a commercial building, and $20,000 was allocable to the land to which the building is attached. Malcolm had purchased the property several years ago, and he used it exclusively for business purposes during the period he owned it. Assuming Malcolm has a gain from the sale of his business assets, how will the gain from the sale of the land be treated for tax purposes? It will be taxed at the tax rates that apply to: Long-term capital gains. Ordinary income. The sale of qualified small business stock. Unrecaptured Section 1250 gains.
Lark City (a government entity) donates land that has a FMV of $800,000 and cash of $100,000 to Orange Corporation as an inducement to locate in the city. Four months later, Orange purchases additional land and a building at a cost of $500,000 and moves its operations to Lark City. Ann, the sole shareholder, contributes equipment (basis of $70,000 and fair market value of $200,000) to help Orange in its new operations in Lark City. What are the amounts to Orange Corporation? 1. gain recognized, if any; 2. basis in land contributed by Lark City; 3. basis in land/building purchased), and 4. tax consequences of the contribution from Ann to Orange Corporation?
During the current year, Hom donates a sculpture that cost $1,000 to a museum for exhibition. The sculpture's fair market value was $1,700 on the date of the donation, and Hom's adjusted gross income is $40,000. Assume Hom held the sculpture for 4 months and the $700 ($1,700 − $1,000) of appreciation is a short-term capital gain. Calculate the amount of his itemized deduction for the contribution. Assume Hom held the sculpture for 2 years and the $700 appreciation is a long-term capital gain. Calculate the amount of his itemized deduction for the contribution.
Silo, Incorporated sold investment land to PPR, Incorporated for $110,000 cash. Silo's basis in the land was $145,000. Mr. and Mrs. Jersey own 100 percent of the stock of both corporations. Required: a. What is PPR's tax basis in the land purchased from Silo? b. PPR holds the land as an investment for seven years before selling it to an unrelated buyer. Compute the gain or loss recognized if the amount realized on sale is: (1) $100,000, (2) $116,000, or (3) $150,000. Complete this question by entering your answers in the tabs below. Required A Required B PPR holds the land as an investment for seven years before selling it totan unrelated buyer. Compute the gain or loss recognized if the amount realized on sale is: (1) $100,000, (2) $116,000, or (3) $150,000. Note: Enter a loss with a minus sign. (1) $100,000 (2) $116,000 (3) $150,000 Recognized Gain or Loss $ $ 0 5,000