Question

Jenny transferred a factory building with an adjusted basis of $70,000 and a fair market value of $110,000 to the Crystal Corporation in exchange for 100% of Crystal Corporation stock and $20,000 cash. The building was subject to a mortgage of $25,000, which Crystal Corporation assumed. The fair market value of the stock was $75,000. Which are the amounts of Jenny's realized gain and recognized gain?

Answer 1

Particulars	Amount
FMV of property received	75,000
Add: cash	20,000
Add: loan relief	25,000
Amount realized	120,000
Less: basis in property given	(70,000)
Gain realized	50,000

Gain recognized = lesser of (1) 50,000 realized gain and (2) 20,000 cash received = $20,000