Henry transfers property with an adjusted basis of $90,000 and an FMV of $100,000 to a newly- formed corporation in a Sec. 351 exchange. Henry receives stock with an FMV of $80,000 and a short- term note with a $20,000 FMV. Henry's recognized gain is

Question

Quizplus · Accepted Answer

In a Sec. 351 exchange, gain is recognized to the extent of boot received. Henry received a short-term note (boot) worth $20,000. The realized gain is $10,000 ($100,000 FMV - $90,000 basis), and since the boot is $20,000, the recognized gain is the lesser of the realized gain or the boot, which is $10,000.

Henry Transfers Property with an Adjusted Basis of $90,000 and an FMV