Question

Mr. Trent transferred three apartment buildings to a new corporation in exchange for all its stock. The facts pertaining to the buildings were:

Building	Basis	Value	Mortgage	Recapture Potential
1	$10,000	$100,000	$60,000	$0
2	15,000	80,000	0	5,000
3	20,000	30,000	0	4,000

a- What gains are realized and recognized in each building?

b- What is the character of the gains?

c- What is the corporation's basis in each building?

d- What is Mr. Trent's basis in his stock?

Answer 1

A. 1. 100,000-60,000-10,000

= $30,000

2. 80,000-15,000

= $65,000

3. 30,000-20,000

= $10,000

B. It is capital gain and whether it is short term or long term depends upon for how long have Mr. Trent hold these Buildings.

C. Corporate basis are the fair values of the assets

I.e. $40,000 , $80,000 & $30,000 respectively.

D. Same as of the company's. That is the Providings on which he has paid taxes.

Note that Recapture potential are ignored at the time of sale although if the buyer uses this right later, than it will be treated.

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