Harry forms the Nectarine Corporation during the 2014 tax year. To form the corporation, Harry transfers assets having a fair market value of $650,000 to Nectarine Corporation for 100 percent of the corporation's stock. Harry's adjusted basis in the assets transferred was $375,000 and Nectarine Corporation assumed a $200,000 mortgage on the assets. If the fair market value of the stock received by Harry is $450,000, what is his basis in the stock received from the corporation?

Question

Quizplus · Accepted Answer

Harry's basis in the stock received is equal to the adjusted basis of the assets transferred, which is $375,000, minus the amount of liabilities assumed by the corporation, which is $200,000. Therefore, Harry's basis in the stock received is $175,000.

Harry Forms the Nectarine Corporation During the 2014 Tax Year