Tesla, Inc., is a calendar year, accrual basis corporation with Elon as its sole shareholder (basis in his stock is $90,000). On January 1 of the current year, Tesla has accumulated E & P of $200,000. Before considering the effect of the distribution described below, the corporation’s current E P is $50,000. On November 1, Tesla distributes an office building to Elon. The office building has an adjusted basis of $80,000 (fair market value of $100,000) and is subject to a mortgage of $90,000. Assume that the building has been depreciated using the ADS method for both income tax and E&P purposes. What are the tax consequences of the distribution to Tesla and to Elon? (In your answer, be sure to describe the effects on taxable income for both Tesla and Elon, the impact of the distribution on Tesla’s E&P, and Elon’s basis in the building.)
Tesla, Inc., is a calendar year, accrual basis corporation with Elon as its sole shareholder (basis in his stock is $90,000). On January 1 of the current year, Tesla has accumulated E & P of $200,000. Before considering the effect of the distribution described below, the corporation’s current E P is $50,000. On November 1, Tesla distributes an office building to Elon. The office building has an adjusted basis of $80,000 (fair market value of $100,000) and is subject to a mortgage of $90,000. Assume that the building has been
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
