Dick, a cash basis taxpayer, incorporates his sole proprietorship.He transfers the following items to newly created Orange Corporation. $\begin{array}{lrr} &&\text { Fair Market }\
& \text { Adjusted Basis } & \text { Value } \
\text { Cash } & \$ 10,000 & \$ 10,000 \
\text { Buil ding } & 120,000 & 175,000 \
\text { Mortgage payable (secured by the building and held } & 135,000 & 135,000\\text { for } 15 \text { years) }
\end{array}$ ? With respect to this transaction:
A)Orange Corporation's basis in the building is $120,000.
B)Dick has no recognized gain.
C)Dick has a recognized gain of $5,000.
D)Dick has a recognized gain of $10,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Dick has a recognized gain of $5,000 because the liability assumed by the corporation ($135,000) exceeds the adjusted basis of the assets transferred ($130,000 total for cash and building), resulting in a gain to the extent of the excess.

Dick, a Cash Basis Taxpayer, Incorporates His Sole Proprietorship ? with Respect to This Transaction: A)Orange Corporation's Basis in the Following

Dick, a Cash Basis Taxpayer, Incorporates His Sole Proprietorship ? with Respect to This Transaction:
A)Orange Corporation's Basis in the Following