Question

Rachelle transfers property with a tax basis of $800 and a fair market value of $900 to a corporation in exchange for stock with a fair market value of $750 and $50 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $100 on the property transferred. What is Rachelle's tax basis in the stock received in the exchange? A. $900 B. $850 C. $750 D. $700

Answer 1

Answer:

A. $900

Explanation:

Section 351 states that no gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control (as defined in section 368(c)) of the corporation. Therefore, Rachelle's tax basis in the stock received in the exchange equals to the sum of  the stock's fair market value of $750, $50 in cash, and the liability of $100 that the corporation credited into their book.