Allen transfers marketable securities with an adjusted basis of $120,000, fair market value of $300,000, for 85% of the stock of Heron Corporation. In addition, he receives cash of $40,000. Allen recognizes a capital gain of $40,000 on the transfer.

Question

Quizplus · Accepted Answer

Allen receives cash in addition to stock, which is considered "boot" in a tax-free exchange. The gain recognized is the lesser of the realized gain or the boot received, which in this case is $40,000.

Allen Transfers Marketable Securities with an Adjusted Basis of $120,000