Ruth transfers property worth $200,000 (basis of $60,000) to Goldfinch Corporation. In return, she receives 80% of its stock (worth $180,000) and a long-term note executed by Goldfinch and made payable to Ruth (worth $20,000). Ruth will recognize no gain on the transfer.

Question

Quizplus · Accepted Answer

Ruth will recognize gain to the extent of the lesser of the gain realized or the fair market value of the "boot" received, which in this case is the long-term note worth $20,000. The gain realized is the difference between the fair market value of the property transferred ($200,000) and its basis ($60,000), which is $140,000. Since she received a note worth $20,000, she must recognize $20,000 as gain.

Ruth Transfers Property Worth $200,000 (Basis of $60,000) to Goldfinch