Arnold purchases a building for $750,000 that is going to be used by his wholly owned corporation. Which of the following statements are correct?
A) If Arnold contributes the building to the corporation, there will be no gross income in the current year and a carryover basis of $750,000.
B) If Arnold leases the building to the corporation, lease-rental payments of $30,000 per year to Arnold will result in a $30,000 deduction for the corporation.
C) If Arnold leases the building to the corporation, lease-rental payments of $30,000 per year to Arnold will result in $30,000 of gross income for Arnold.
D) Leasing the building to the corporation will contribute to the tax avoidance objective of minimizing double taxation.
E) All of these statements are correct.

Question

Quizplus · Accepted Answer

All the statements provided are correct. A) When Arnold contributes the building to his corporation, it's a transfer of property to a corporation controlled by the transferor, so there's no recognition of gain or loss, and the corporation takes a carryover basis in the property. B) Lease payments made by the corporation to Arnold are deductible business expenses for the corporation. C) The lease payments Arnold receives are considered rental income, thus taxable as gross income. D) Leasing the building to the corporation can help minimize double taxation by allowing the corporation to deduct lease payments, while Arnold reports the rental income, avoiding the corporate income tax followed by dividend distribution tax.

Arnold Purchases a Building for $750,000 That Is Going to Be