Tim, a cash basis taxpayer, incorporates his sole proprietorship. He transfers the following items to newly created Wren Corporation. With respect to this transaction:

Question

Tim, a cash basis taxpayer, incorporates his sole proprietorship. He transfers the following items to newly created Wren Corporation.  With respect to this transaction:

Quizplus · Accepted Answer

Tim transfers the building to Wren Corporation, which has a fair market value of $125,000 and a adjusted basis of $100,000. Since Tim is a cash basis taxpayer, he recognizes gain on the transfer to the extent of boot received. The boot received is $25,000 ($125,000 FMV of building - $100,000 basis of building transferred). Therefore, Tim has a recognized gain of $25,000. The basis of the building in the hands of Wren Corporation is its fair market value of $125,000.

Tim, a Cash Basis Taxpayer, Incorporates His Sole Proprietorship