Question

Cindy, a sole shareholder of Beta Inc. contibuted and to be used by the corporation as apartin lost . she receives no additional stock in the corporation. the land has a fair value of $10,000 and adjusted basis of $12,000

a- how much gain/loss does Cindy realize?

B- how much gain/loss Cindy recognize?

Answer 1

Code sec 362

Cindy the sole shareholder has a $2,000 realized gain (12,000 -10,000 ) but no recognized gain. Her basis in Beta stock is increased by $10000. Beta Inc recognizes no gain or loss. The corporation’s basis in the land is $10000.

a- Realised Gain is 2000

In this case, Cindy the shareholder receives no stock, the shareholder basis in the stock owned prior to the contribution is increased to the amount of cash and adjusted basis of the property transferred plus any gain recognised by the shareholder.

But Shareholders do not recognise a gain or loss when they transfer a property as a contribution to capital. Therefore, Cindy does not have any recognised gain.

B- No recognised gain or loss