Fundamentals of Taxation 2011 4th Edition by Ana Cruz, Debra Prendergast, Dan Schisler, Michael Deschamps

Exercise 22

Annabelle forms a corporation in which she is the sole shareholder. She transfers $20,000 cash plus land with a $100,000 adjusted basis and a $160,000 FMV in exchange for all the stock of the corporation. The corporation assumes the $140,000 mortgage on the land. What is her basis in the stock, and what is the gain she must report (if any)? a. No gain; stock basis is $120,000.
B) Gain of $20,000; stock basis is $120,000.
C) No gain; stock basis is $100,000.
D) Gain of $20,000; stock basis is zero.