During the current year, Mr. Thomas Nelson transferred a depreciable capital property to a new corporation. Mr.
Question:
During the current year, Mr. Thomas Nelson transferred a depreciable capital property to a new corporation. Mr. Nelson owns all of the shares in the new corporation. The corporation will have a December 31 year end.
The transferred property was the only asset in its CCA class. It had been purchased several years ago for $225,000. Because of increasing difficulty in acquiring this type of property, it now has a fair market value of $316,000. At the time of the transfer, the balance in the UCC class was $189,600.
In order to absorb a $40,000 capital loss on a stock sale in the current year, he elects to transfer the property at a value of $265,000 ($225,000 + $40,000).
As consideration, Mr. Nelson takes back a note for $150,000, preferred shares with a fair market value of $50,000, and common shares with a fair market value of $116,000.
Required:
Describe the income tax implications resulting from this transaction. Your answer should include both current tax implications, and the determination of values that will have future tax implications
Concepts in Federal Taxation
ISBN: 9780324379556
19th Edition
Authors: Kevin E. Murphy, Mark Higgins, Tonya K. Flesher