Arnold Purchases a Building for $750,000 That Is Going to Be

question 109

Multiple Choice

Arnold purchases a building for $750,000 that is going to be used by his wholly owned corporation. Which of the following statements are correct?

• A) If Arnold contributes the building to the corporation, there will be no gross income in the current year and a carryover basis of $750,000.
• B) If Arnold leases the building to the corporation, lease-rental payments of $30,000 per year to Arnold will result in a $30,000 deduction for the corporation.
• C) If Arnold leases the building to the corporation, lease-rental payments of $30,000 per year to Arnold will result in $30,000 of gross income for Arnold.
• D) Leasing the building to the corporation will contribute to the tax avoidance objective of minimizing double taxation.
• E) All of these statements are correct.

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Definitions:

Calendar Year

The one-year period that begins on January 1st and ends on December 31st, used in most accounting and financial calculations.

Straight-Line Method

A method of calculating the depreciation of an asset, which assumes the asset will depreciate by the same amount each year over its useful life.

Salvage Value

The estimated resale value of an asset at the end of its useful life, used in calculating depreciation expenses.

Depreciation

The systematic allocation of the cost of a tangible asset over its useful life, reflecting the decrease in value over time due to use and wear and tear.