Rebecca and Stan each own a 50% interest in a business entity.Rebecca contributed $200,000 for her ownership interest and Stan contributed land worth $200,000 (adjusted basis of $150,000).Several months after the formation of the entity,the land is sold for $220,000.
A)If the entity is a partnership, Stan's share of the recognized gain on the sale of the land is $35,000.
B)If the entity is an S corporation, Stan's share of the recognized gain on the sale of the land is $60,000.
C)If the entity is a C corporation, Stan's share of the recognized gain on the sale of the land is $10,000.
D)If the entity is a limited liability company, Stan's share of the recognized gain on the sale of the land is $60,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Stan's realized gain of $50,000 ($200,000 - $150,000)is not recognized at the time of the contribution of the land to the business entity.The business entity's basis for the land is a carryover basis of $150,000.Thus,the recognized gain on the sale of the land is $70,000 ($220,000 - $150,000).For the partnership and the limited liability company,Stan's share of the recognized gain is $60,000 [$50,000 + ($20,000 F1F1F1S1F1F1F10 50%)].For the C corporation,the $70,000 recognized gain is taxed at the corporation level rather than at the shareholder level.For the S corporation,Stan's share of the recognized gain is $35,000.

Rebecca and Stan Each Own a 50% Interest in a Business