Question

Harry, Hermione, and Ron formed an S corporation called Bumblebore. Harry and Hermione both contributed cash of $33,500 to get things started. Ron was a bit short on cash but had a parcel of land valued at $78,100 (basis of $67,000) that he decided to contribute. The land was encumbered by a $44,600 mortgage. What tax bases will each of the three have in his or her stock of Bumblebore?

Answer 1

Answer: Harry tax basis = $33500

Hermione tax basis = $33500

Ron tax basis = $22400

Step-by-step explanation:

Harry and Hermione both contributed cash of $33,500 to get things started. Therefore,

Harry tax basis = $33500

Hermione tax basis = $33500

Ron tax basis will be the difference between the basis of the land and the mortgage.

= $67000 - $44600 = $22400