Question

Allie forms Broadbill Corporation by transferring land (basis of $125,000, fair market value of $775,000), which is subject to a mortgage of $375,000. One month prior to incorporating Broadbill, Allie borrows $100,000 for personal reasons and gives the lender a second mortgage on the land. Broadbill Corporation issues stock worth $300,000 to Allie and assumes the mortgages on the land. If an amount is zero, enter "0". a. What are the tax consequences to Allie and to Broadbill Corporation? Since both $ 357(b) and 5 357(c) are applicable , Allie has a realized gain of $ is recognized. Broadbill Corporation has a basis of $ in the land and Allie has a $ of which $ basis in the stock.

Answer 1

ANSWER

A	Tax consequence to Allie and Broadbill Corporation
	Since both 357(b) and 357(c) are applicable, 357(b) predominates the latter
	Computation of realized gain of Allie
		Amt ($)
	Stock received	300000
	Add : Liabilities assumed by Broadbill	475000
	($375,000 + $100,000)
	Less: Basis of the land	-125,000
	Realized Gain	650,000
	The recognized gain is realized gain or boot received whichever is lower
	Boot received = Liability assumed by others
	= ($375,000 + $100,000)	= $475,000
	Here, boot received of $475,000 is lower than realized gain of $650,000
	hence boot received would be the recognized gain ; $475,000
	Computation of Basis of land for Broadbill Corporation and Allie
	Broadbill Corporation	Amt ($)
	Carryover basis of land	125,000
	Add: gain recognized by Allie	475,000
		600,000
	Allie	Amt ($)
	Carryover basis of land	125,000
	Add: gain recognized	475,000
	Less : Liabilities assumed by Broadbill	-475,000
		125,000
B	Tax consequence to Allie if she did not borrow the $100,000
	Only 357(c) would apply
	Computation of realized gain of Allie
		Amt ($)
	Liabilities assumed by Broadbill	375000
	Less: Basis of the land	-125,000
	Realized Gain	250,000
	The recognized gain is realized gain or boot received whichever is lower
	Boot received = Liability assumed by others; $375,000
	Here, boot received of $375,000 is higher than realized gain of $250,000
	hence realized gain would be the recognized gain ; $250,000
	Computation of Basis of land for Broadbill Corporation and Allie
	Broadbill Corporation	Amt ($)
	Carryover basis of land	125,000
	Add: gain recognized by Allie	250,000
		375,000
	Allie	Amt ($)
	Carryover basis of land	125,000
	Add: gain recognized	250,000
	Less : Liabilities assumed by Broadbill	-375,000
		0

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