Question

Wilbur transfers property valued at $100,000 (basis = $70,000) to the Debold Corporation in exchange for 100 percent of its stock. What is Wilbur’s realized gain or loss on the transfer and his recognized gain or loss? What is his basis in the stock received? What is the corporation’s basis in the property received?

Answer 1

Answer

As section 351is applicable here and business debt is less than the tax basis of Wilbur, therefore no gain or loss will be recognized.

For 100% stock

Aggregate tax basis $-70,000

FMV of Stock received $1,00,000

Mortgage/ Liabilities assumed -

Realized Gain $30,000

Recognized gain per sec 351 $ 0

Wilbur;s basis in stock (carryover basis - liabilities) (70000-0) $70,0000

Corporate basis in asset (Carryover basis of shareholder+ a gain recognized) $70,0000