Question

Harry, Hermione, and Ron formed an S corporation called Bumblebore. Harry and Hermione both contributed cash of $29,500 to get things started. Ron was a bit short on cash but had a parcel of land valued at $71,600 (basis of $59,000) that he decided to contribute. The land was encumbered by a $42,100 mortgage. What tax bases will each of the three have in his or her stock of Bumblebore

Answer 1

The tax bases of Harry = $29,500, Hermoine = $29,500 and Ron = $16,900

Step-by-step explanation:

Harry and Hermoine will have equal tax basis of $29,500. Ron tax basis shall be $59,000 basis in land contributed as deducted by $42,100 mortgage that the Ron is relieved of. Hence Ron's tax basis is $59,000 - $42,100 = $16,900