Harry, Hermione, and Ron formed an S corporation called Bumblebore. Harry and Hermione both contributed cash of $40,300 to get things started. Ron was a bit short on cash but had a parcel of land valued at $98,000 (basis of $80,600) that he decided to contribute. The land was encumbered by a $57,700 mortgage. What tax bases will each of the three have in his or her stock of Bumblebore

The correct answer is $40,300, $40,300 and $22,900

Explanation:

According to the scenario, the given data are as follows:

Harry contributed = $40,300

Hermione contributed = $40,300

Ron contributed land value = $98,000

Basis of land = $80,600

Mortgage on land = $57,700

So, we can calculate the tax basis for each by using following method:

Tax basis of Harry = Harry contributed cash

Tax basis of Harry = $40,300

Tax basis of Hermione = Hermione contributed cash

Tax basis of Hermione = $40,300

Tax basis of Ron = Basis of land - Mortgage on land

= $80,600 - $57,700

= $22,900