Winston is the sole shareholder of Winston Inc, an S corporation. In 2017, he paid $50,000 for his shares of stock. During the current year, he contributes a building and land to the corporation. No additional shares of stock are issued. The basis of this property is $75,000, and its fair market value is $200,000. What is Winston's basis in his Winston stock at the end of 2018?

Question

Quizplus · Accepted Answer

When Winston contributed the building and land to the corporation, his basis in the stock increased by the fair market value of the property minus any liabilities assumed by the corporation (since no additional shares were issued).

Therefore, Winston's new basis in his stock would be:

$50,000 (original basis) + $125,000 (increase in basis from the property contribution) = $175,000

However, since his basis cannot exceed the fair market value of the property, his basis in his stock is limited to $125,000. Therefore, the answer is choice letter C.

Winston Is the Sole Shareholder of Winston Inc, an S