Sam and Vera are going to establish a business. Sam will contribute cash of $100,000 for a 50% interest, and Vera will contribute land and a building worth $135,000 (adjusted basis of $65,000) for a 50% interest. The land and building is encumbered by a $35,000 mortgage which the entity assumes. Determine the tax consequences of the contribution to Sam, Vera, and the entity if the business is:
a. An S corporation.
b. A partnership.
c. A C corporation.

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The Answer of Sam and Vera are going to establish a business. Sam will contribute cash of $100,000 for a 50% interest, and Vera will contribute land and a building worth $135,000 (adjusted basis of $65,000) for a 50% interest. The land and building is encumbered by a $35,000 mortgage which the entity assumes. Determine the tax consequences of the contribution to Sam, Vera, and the entity if the business is:
a. An S corporation.
b. A partnership.
c. A C corporation.

Sam and Vera Are Going to Establish a Business