Harry a cash basis taxpayer incorporates his sole proprietor

Harry, a cash basis taxpayer, incorporates his sole proprietorship. He transfers the following items to newly created Southwest Corporation and receives only stock in Exchange

                                                      Adjusted Basis            Fair Market

                                                                                                   Value

Land                                              100,000                       160,000

Mortgage payable

(secured by the land and held        120,000                       120000

for 5years)                                    

Harry corporation will have a basis in the land of

a) 0

b) 100000

c) 120000

d) 160000

e) 40000

Solution

Ans) Harry corporation will have a basis in the land of $160,000

Basis of Land = Adjusted value of land for tax purpose

adjusted value of land given= $160,000