Amy transfers property with a tax basis of $900 and a fair market value of $600 to a corporation in exchange for stock with a fair market value of $450 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $150 on the property transferred. What is Amy's tax basis in the stock received in the exchange?
A)$900
B)$750
C)$650
D)$450

Question

Quizplus · Accepted Answer

Under section 351, Amy will not recognize any gain or loss on the transfer of property to the corporation in exchange for stock as long as she receives stock with a “substantially equivalent” value. In this case, she receives stock with a fair market value of $450, which is within the “substantially equivalent” range. 
To determine her tax basis in the stock received, we start with the property’s basis of $900 and subtract any liabilities assumed by the corporation, which in this case is $150. This gives us an adjusted basis of $750 for the property transferred. Since Amy received stock with a fair market value of $450, her tax basis in the stock is equal to the adjusted basis of the property transferred minus the fair market value of the stock received, or $750 - $450 = $300. Therefore, the correct answer is B.

Amy Transfers Property with a Tax Basis of $900 and a Fair