Kevin and Nicole form Indigo Corporation with the following transfers: inventory from Kevin (basis of $360,000 and
Question:
Kevin and Nicole form Indigo Corporation with the following transfers: inventory from Kevin (basis of $360,000 and fair market value of $500,000, subject to a lien for a loan of $100,000 used to finance the acquisition of the inventory) and improved real estate from Nicole (basis of $320,000 and fair market value of $375,000). Nicole, an accountant, agrees to contribute her services (worth $25,000) in organizing Indigo. Each receives 100 shares of stock. As a result of these transfers:
a. Indigo can deduct $25,000 as a business expense.
b. Nicole has a recognized gain of $55,000 on the transfer of the real estate.
c. Indigo has a basis of $260,000 in the inventory.
d. Indigo has a basis of $375,000 in the real estate.
e. Indigo has an organizational expenditure of $25,000 that must be capitalized, and which it may elect to deduct up to a maximum amount of $5,000 immediately and to amortize the remainder.
South Western Federal Taxation 2015 Essentials of Taxation Individuals and Business Entities
ISBN: 9781285438290
18th edition
Authors: James Smith, William Raabe, David Maloney, James Young