Tara transfers land with a $600,000 adjusted basis and a $700,000 FMV to a corporation in a Sec.351 transfer.Immediately after the transfer,Tara owns 100% of the corporation-stock with a FMV of $660,000.In addition,Tara's $40,000 principal balance on her student loan is legally assumed by the corporation as part of the overall transfer.No other property is transferred.Tara's recognized gain on the transfer is

Question

Quizplus · Accepted Answer

In a Sec.351 transfer, no gain or loss is recognized if property is transferred to a corporation solely in exchange for stock and immediately after the transfer the transferor owns at least 80% of the total combined voting power of all classes of stock entitled to vote and at least 80% of the total number of shares of all other classes of stock of the corporation.

In this scenario, Tara transfers land with a $600,000 adjusted basis and a $700,000 FMV to the corporation in exchange for stock with a FMV of $660,000. Tara owns 100% of the corporation-stock, which means that she meets the requirements for a Sec.351 transfer.

However, Tara's student loan principal balance of $40,000 is also assumed by the corporation as part of the overall transfer. Since this is not considered property solely in exchange for stock, Tara will recognize a gain of $40,000 ($40,000 assumed liability minus $0 adjusted basis) on the transfer. Therefore, the answer is B.

Tara Transfers Land with a $600,000 Adjusted Basis and a $700,000