P formed Y Corporation by transferring property worth $70,000 to the corporation for all of its stock.The property had a basis of $30,000 and was subject to a mortgage of $10,000.P's basis in her stock is $20,000.

Question

Quizplus · Accepted Answer

The value of the property transferred to the corporation ($70,000) minus the mortgage on the property ($10,000) equals the value of the stock that P received ($60,000). Since P's basis in the property was $30,000, her basis in the stock is $30,000 (the value of the property minus the mortgage) plus any additional consideration paid for the stock, which is $0 in this case. Therefore, her basis in the stock is $30,000, not $20,000, as stated in the question.

P Formed Y Corporation by Transferring Property Worth $70,000 to the Corporation