Twelve years ago, Mr. Smith contributed a property that includes a building and land to Smith Office Furniture, a C corporation.

• The property will be used for office and warehouse space.
• Mr. Smith acquired the property and used it as rental property for five years prior to the contribution to the corporation.
• The property was exchanged for a 30 percent equity interest in the corporation.
• After the contribution of the property, Mr. Smith had an 80% interest in the corporation.
• The adjusted tax basis in the warehouse property at the time of the contribution to the corporation was $1,500,000 (building $900,000 and $600,000 land). This basis reflects depreciation taken up to the date of the contribution.
• The building's appraised FMV on date of contribution to the business was $1,650,000.

During the current year, Mr. Smith decided to retire and close the business.

• On the last day of the year the corporation sold the property (building and land) to an unrelated purchaser for $2,500,000.
• A realtor was paid a 6 percent commission.
• The corporation will liquidate its office furniture inventory shortly and the company may need your assistance with that at a later date.

1

Based on the facts above, did Mr. Smith recognize a gain on the contribution of the property to the corporation?

2. What was the corporation's basis and holding period in the property immediately after the contribution? Explain. Be specific.

3. Considering that the property is depreciable property, determine the adjusted basis of the property on the date of sale. You will need to consult the depreciation tables. Assume that the contribution of the property to the corporation was made on the first day of the year and the corporation's sale of the property was made on the last day of the year (twelve years later). Be mindful that the mid-month convention is built in the MACRS table for the year of acquisition but not in the year of the disposition (sale).

4. Calculate the realized amount received, adjusted basis, and the realized gain on the sale of the property from the corporation to the unrelated purchaser.