Question

Harry, Hermione, and Ron formed an S corporation called Dumbledore. Harry and Hermione both contributed cash of $25,000 to get things started. Ron was a bit short on cash but had a parcel of land valued at $60,000 (basis of $50,000) that he decided to contribute. The land was encumbered by a $35,000 mortgage. What tax bases will each of the three have in his or her or his stock of Bumblebee

Answer 1

Harry's basis = $25,000

Hermione's basis = $25,000

Ron's basis = $15,000

Step-by-step explanation:

Data provided

Basis = $50,000

Land Encumbered = $35,000

The computation of Ron's basis is shown below:-

Harry's basis is equal to cash contributed = $25,000

Hermione's basis is equal to cash contributed = $25,000

Ron's basis = Basis - Land encumbered

= $50,000 - $35,000

= $15,000

Therefore for computing Ron's basis we simply deduct the land from land encumbered.