Question

Ambros transfers property (basis of $320,000 and fair market value of $210,000) to Weikhard Corporation in exchange for shares of § 1244 stock. Assume that the transfer qualifies under § 351.

a. Assuming that Ambros and Weikhard do not make an election to reduce his stock basis, the basis of the stock to Ambros is $ .______

b. The basis of the stock to Ambros for purposes of § 1244 is $ ._________

c. If Ambros sells the stock for $195,000 two years later, he would have a capital loss of $_______ and an ordinary loss of $ _________for tax purposes.

Answer 1

A. the basis of the stock to ambrios is $320000 as they elect not to reduce their stock basis  

B. The basis of the stock to Ambros for purposes of § 1244 is $ 210000 which will take Market Value as their stock basis

C. if Ambrois Sells the stock for $195000 2 years later then he will have loss of $125000($195000-$320000 basis).However there will be a loss of $15000($195000-$210000) under Sec 1244 which will be treated as ordinary loss and remaining $110000 will be treated as capital loss

Ordinary loss $15000 for tax purposes

Capital Loss $110000 for tax purposes