Suppose you are operating a landscaping business as a sole proprietor.

In this business you own a tractor that is worth $10,000 and you have an adjusted basis in the tractor of $8,000. There is a $3,000 bank loan on the tractor.

You decide you want to incorporate your business or start a partnership with a friend.

You contribute $5,000 cash plus the tractor into the business. The business will assume the bank loan.

What is your basis in the business if you create:

1) a C corp. (you are the only stockholder),

2) an S corp. (you are the only stockholder) or

3) a partnership (you are a 50% partner)?