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Terry transfers property with a tax basis of $190 and a fair market value of $290...

Terry transfers property with a tax basis of $190 and a fair market value of $290 to a corporation in exchange for stock with a fair market value of $240 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $50 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

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Answer #1

Under section 351, gain deferral is allowed: now understand the situation:

Tax basis in property of Terry = $190

In exchange received:

Stock having fair market value = $240

+liability assumed by corporation = $50

Total value received = $290

Gain realized = (290-190) = $100

Gain deferred u/s 351 = $100

So property basis in corporation hand = Property basis in Terry hand + Any gain recognized

= $190 + 0

= $190

Here take note , Property basis in hands of corporation will remain the same as terry basis, since $100 gain realized by terry is not recognized by terry until stock sold by terry.

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