Mario and Lupita form a corporation in a transaction coming under Sec. 351. Lupita transfers property with an adjusted basis of $150,000 and an FMV of $200,000 in exchange for one-half of the stock. The property has an $80,000 mortgage, which the corporation assumes. The corporation's basis in the property is
A)$200,000.
B)$150,000.
C)$80,000.
D)$130,000.

Question

Quizplus · Accepted Answer

Under Section 351 of the Internal Revenue Code, when property is transferred to a corporation by one or more persons in exchange for stock in such corporation, and immediately after the exchange such person or persons are in control (meaning ownership of at least 80% of the stock) of the corporation, the transfer is generally tax-free. The corporation's basis in the property transferred is the same as the transferor's adjusted basis, plus any gain recognized by the transferor on the transfer. In this case, Lupita's adjusted basis in the property is $150,000, and since the transfer qualifies under Sec. 351, the corporation's basis in the property is also $150,000. The assumption of the mortgage does not change the basis of the property.

Mario and Lupita Form a Corporation in a Transaction Coming