Question

Carla incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation’s stock. The property transferred to the corporation had the following fair market values and adjusted bases:

	FMV			Adjusted Basis
Inventory	$	27,250		$	12,500
Building		180,000			113,250
Land		304,500			316,000
Total	$	511,750		$	441,750

The corporation also assumed a mortgage of $188,250 attached to the building and land. The fair market value of the corporation’s stock received in the exchange was $323,500
What amount of gain or loss does Carla realize on the transfer of the property to the corporation?
What amount of gain or loss does Carla recognize on the transfer of the property to her corporation?
What is Carla’s basis in the stock she receives in her corporation?

Answer 1

Part A

Carla realizes a net gain of $70000 on this transfer, computed as follows:

Fair market value of stock received = $ 323500

+ Mortgage assumed by corporation = 188250

Amount realized = $ 511750

- Adjusted tax basis of the property transferred=441750

Gain realized = $ 70,000

Part B

amount of gain or loss does Carla recognize on the transfer of the property to her corporation = $0

Carla does not recognize any gain or loss on the transfer because the requirements of §351 are met and no boot is received in the exchange.

Part C

Carla’s basis in the stock she receives in his corporation =$253500 (441750-188250)

Carla’s tax basis in the stock received is a substituted basis of the assets transferred less the mortgage assumed by the corporation.