Use the following information for the next two questions: Greg owns a 75% intere

Question

Use the following information for the next two questions: Greg owns a 75% interest in the stock in the EFG Company. Greg acquired his shares in a qualified transfer to the company (i.e., nontaxable) by contributing land to the company that had an adjusted basis to him of $40,000 and a FMV of $60,000 on the contribution date. Two years after forming the company, the land is sold by EFG to a third party for $70,000.

Assuming EFG is an LLC, how much gain from the sale will be allocated to Greg?

A.            $7,500

B.             $22,500

C.             $40,000

D.            $27,500

Please explain why, thank you.

Explanation / Answer

Since Greg owns 75% of the shares which he received during a non taxable transfer, gain that will be allocated to him = 75% of (70000-40000) = $22,500

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