Rachelle transfers property with a tax basis of $800 and a fair market value of $900 to a corporation in exchange for stock with a fair market value of $750 and $50 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $100 on the property transferred. What is Rachelle's tax basis in the stockreceived in the exchange?

Question

Quizplus · Accepted Answer

When property is transferred in a section 351 exchange, the tax basis of the stock received depends on the tax basis of the property transferred. The tax basis of the stock is determined by subtracting any liabilities assumed by the corporation from the fair market value of the property transferred. In this case, the tax basis of the property transferred is $800 and the liability assumed by the corporation is $100, resulting in a net tax basis of $700. Since the fair market value of the stock received is $750, Rachelle's tax basis in the stock is $700.

Rachelle Transfers Property with a Tax Basis of $800 and a Fair