J formed X Corporation during the year by transferring land worth $50,000 to the corporation in exchange for all of its stock.The property had a basis of $20,000 and was subject to a mortgage of $15,000, which the corporation assumed.As a general rule, J must recognize gain of $15,000.

Question

Quizplus · Accepted Answer

J must recognize gain to the extent of the lesser of the gain realized or the boot received. The gain realized is $30,000 ($50,000 fair market value - $20,000 basis). However, since the only "boot" received is the relief of debt ($15,000), and it is less than the realized gain, J must recognize gain of $15,000. This is consistent with the general rule, but the explanation provided in the question implies the gain is due to other reasons, not the specific rule regarding relief of debt as boot.

J Formed X Corporation During the Year by Transferring Land