[Anonymous]

This sim is asking a corp’s tax basis in the property a shareholder contributed.

Mitchell’s liability assumed with the property is 50,000. basis in the property is 40,000.Mitchell contributed 20,000 cash.

My answer was the corp’s tax basis in this property is the greater of NBV or the debt assumed, which is 50,000.

But the answer is 40,000. WHY??

Anyone help? thanks!

[BEACPA]

ace29,

The rule that allows a corporation to take a higher amount of liability assumed as the basis is a special rule that only applies if the shareholder recognizes gain due to liabilities being in excess of basis of all property contributed. Mitchell contributed $20,000 in

addition to the property. The liabilities did not exceed the basis of all basis contributed, including the cash. Therefore, Mitchell does not recognize any gain and the corporation takes the carryover basis of $40,000 for the property.

FYI, you didn't categorize your post, which makes it difficult for others to find. I just clicked on “I Didn't Categorize My Post – How Embarrassing!” for curiosity and found your post. Good luck on the exam!

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[Anonymous]

Thanks very much BEACPA! That makes sense!

[Author]

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