Question

1. Monk, a sole proprietor, forms a C corporation and transfers property with an adjusted basis of $140,000 and fair market value of $260,000. Monk is the sole owner of the corporation. What amount of gain must Monk recognize in the year he transfers the property? a. $120,000 b. $260,000 c. $0 d. $140,000 2. Based on the facts in the question #1 above, what is Monk’s basis in the corporation’s stock? a. $0 b. $260,000 c. $140,000 d. $120,000 3. Based on the facts in question #1 above, what is the corporation’s basis in the property transferred by Monk? a. $120,000 b. $260,000 c. $0 d. $140,000 4. Based on the facts in question #1 above, if the property transferred was subject to a $60,000 mortgage that was assumed by the corporation, what is Monk’s basis in the corporation’s stock? a. $0 b. $60,000 c. $80,000 d. $140,000

Answer 1

1) a)$120,000

if monk trsfer the property current year he should recognize $120,000 which is the difference bitween Fare market value and basos of the property.but he transfer the property in the future year we canot recognize the amount now.

2) c)$ 1,40,000

Your basis is the amount of your investment in property for tax purposes.The original basis in property is usually its cost. So the Monk's basis in the corporation stock is $1,40,000

3) d)$ 1,40,000

Based on the same concept mentioned above Corporation also valued its basis on cost

4) c)$ 80,000

The original basis is subsequently adjusted (increased or decreased) by certain items. For example, making an improvement to the property increases basis and claiming deprecation or casualty losses reduces basis.So the mortgage amount reduced from cost.$140,000-$60,000 = $ 80,000