Yenhung, who is single, forms a corporation using a tax-free asset transfer, which qualifies under Sec. 351. She contributes property having an adjusted basis of $50,000 and an FMV of $40,000. The stock received from the corporation is Sec. 1244 stock. When Yenhung sells the stock for $30,000, her loss is

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When Yenhung contributes property with an FMV less than its adjusted basis, the basis of the stock received is the FMV of the property contributed ($40,000). Since the stock is Sec. 1244 stock and Yenhung sells it for $30,000, the loss is treated as an ordinary loss up to the Sec. 1244 loss limits ($50,000 for single taxpayers). Therefore, the loss is computed as the difference between the basis of the stock ($40,000) and the selling price ($30,000), which is $10,000.

Yenhung, Who Is Single, Forms a Corporation Using a Tax-Free