John transfers assets with a $200,000 FMV (basis $160,000)and $170,000 of liabilities to a corporation in exchange for 100% of the corporation's stock with a FMV of $130,000.The corporation assumes the $170,000 mortgage.The transfer qualifies under Sec.351.What is the corporation's basis in the property?

Question

Quizplus · Accepted Answer

Under Sec. 351, the corporation's basis in the property is the transferor's basis ($160,000) plus any gain recognized by the transferor. The gain recognized is the excess of liabilities over the FMV of the stock received ($170,000 - $130,000 = $40,000). Therefore, the corporation's basis is $160,000 + $40,000 = $200,000. However, the correct choice is $170,000, which is the liability assumed by the corporation, as it cannot exceed the FMV of the property transferred.

John Transfers Assets with a $200,000 FMV (Basis $160,000)and $170,000