Lucas transfers investment land to a corporation as part of a Section 351 transaction.The land has a fair market value of $75,000, an adjusted basis of $30,000, and is encumbered by a mortgage (from its original purchase five years ago by Lucas) of $40,000 that the corporation assumes.In exchange for the land, the corporation issues stock to Lucas worth $35,000.How much gain does Lucas recognize, what is Lucas's stock basis, and what is the basis of the land to the corporation, respectively?
A)$0 gain; $30,000 stock basis; $30,000 land basis
B)$10,000 gain; $0 stock basis; $40,000 land basis
C)$10,000 gain; $10,000 stock basis; $30,000 land basis
D)$0 gain; $0 stock basis; $30,000 land basis

Question

Quizplus · Accepted Answer

Lucas recognizes a gain of $10,000 because the liability assumed by the corporation ($40,000) exceeds his adjusted basis in the land ($30,000). His stock basis is $0 because the gain recognized is equal to the excess of the liability over the basis. The corporation's basis in the land is $40,000, which is the adjusted basis of the land plus the gain recognized by Lucas.

Lucas Transfers Investment Land to a Corporation as Part of a Section