Lynn transfers land having a $50,000 adjusted basis, an $80,000 FMV, and $10,000 cash to Allied Corporation in exchange for 100% of Allied's stock. The corporation assumes the $70,000 mortgage on the land. Which of the following statements is correct?

Question

Quizplus · Accepted Answer

Lynn recognizes a $10,000 gain because the mortgage assumed by the corporation ($70,000) exceeds the adjusted basis of the land ($50,000) by $20,000, but the cash received ($10,000) reduces the recognized gain to $10,000. The stock basis is zero because the basis of the stock is the adjusted basis of the land ($50,000) minus the mortgage assumed ($70,000) plus the gain recognized ($10,000).

Lynn Transfers Land Having a $50,000 Adjusted Basis, an $80,000