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Clint contributed a piece of equipment to Raccoon Corporation in exchange for stock in a transaction that qualified under Code Sec
Clint contributed a piece of equipment to Raccoon Corporation in exchange for stock in a transaction that qualified under Code Sec. 351. Clint had purchased the equipment (7-year property) three years ago for $100,000 and had already recorded depreciation of $56,270. Clint had to recognize $10,000 of gain in the transaction because he received boot. Which of the following statements about the depreciation of this equipment for Raccoon is true?
Raccoon will depreciate the $10,000 basis using the same schedule that Clint had already started and will depreciate the $43,730 of basis as if it had bought a new asset for that amount.
Raccoon will continue to depreciate the $43,730 using the same schedule that Clint had already started and will depreciate the additional $10,000 of basis as if it had bought a new asset for that amount.
The entire basis of $53,730 will be depreciated as if Raccoon had purchased a new asset for that amount.
#2
Which of the following would create a deferred tax asset or reduce a deferred tax liability?
Adding a temporary book to tax difference
Subtracting a temporary book to tax difference
Subtracting a permanent book to tax difference
Adding a permanent book to tax difference
Expert Solution
Thanks for your question. Please note as per chegg policy only one question can be answered at a time. I request you to please repost the remaining question & please refer below to the answer of your first question:
As per Section 351 of Internal Revenue Code, when depreciable property is transferred to a corporation and the transferor has not fully depreciated the property, the corporation must use the same depreciation method and recovery period that the transferor used. Further if corporation basis in the property exceeds the transferor’s basis, then the corporation should treat the excess basis as newly purchased depreciable property.
Hence option "Raccoon will continue to depreciate the $43,730 using the same schedule that Clint had already started and will depreciate the additional $10,000 of basis as if it had bought a new asset for that amount" is correct.
Further, I would like to request your valuable feedback on the submitted answer. Kindly let me know in case you would like to have any changes made in terms of any adjustments, format changes or disclosures to further enhance the quality and help me in serving you better. Should you have any queries regarding this answer, please let me know.
Best Regards,
Dipesh
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