Question

Eddie contributes property worth $50,000 (adjusted basis = $30,000) to Lindy Corp. Eddie is already the sole shareholder of Lindy and receives nothing in return for his transfer. Lindy's basis in the property is ______.

a. $0.
b. $30,000.
c. $50,000.
d. The basis is not affected.

Answer 1

Lindy Corp's basis in the property contributed by Eddie is $30,000 because a corporation takes the same adjusted basis as the contributing shareholder's adjusted basis when property is contributed to the corporation.

Step-by-step explanation:

The question at hand involves tax basis in property contribution to a corporation by a shareholder. In the situation described, Eddie contributes property to Lindy Corp, which he solely owns, and receives nothing in return. The property has a fair market value of $50,000 and an adjusted basis of $30,000. According to U.S. tax laws, specifically IRC Section 362, when property is contributed to a corporation by a shareholder, the corporation's basis in the property is the same as the shareholder's adjusted basis, therefore Lindy's basis in the property is $30,000. This rule is intended to prevent the transfer of property to a corporation from altering the inherent gain or loss in the property contributed.