This year J and K formed New Corporation.J transferred the assets below to New in exchange for stock. $\begin{array} { l }&\text { Adjusted Basis }&\text { Fair Market Value }\
\text { Building }&\$45,000&\$90,000\
\text { Equipment }&100,000&110,000\
\text { Total }&\$145,000&\$200,000
\end{array}$
In addition the building was subject to a mortgage of $50,000.J received stock worth $150,000 on the exchange.Assume that the transfer meets the requirements of § 351.J's basis in his stock is

Question

This year J and K formed New Corporation.J transferred the assets below to New in exchange for stock. $\begin{array} { l  }&\text { Adjusted Basis }&\text { Fair Market Value }\
\text { Building }&\$45,000&\$90,000\
\text { Equipment }&100,000&110,000\
\text { Total }&\$145,000&\$200,000
\end{array}$
 In addition the building was subject to a mortgage of $50,000.J received stock worth $150,000 on the exchange.Assume that the transfer meets the requirements of § 351.J's basis in his stock is

Quizplus · Accepted Answer

J's basis in the stock is calculated by taking the adjusted basis of the transferred assets ($145,000), subtracting the mortgage liability assumed by the corporation ($50,000), which equals $95,000. This is because under § 351, the transferor's basis in the stock received is generally the transferor's adjusted basis in the property transferred, decreased by any liabilities assumed by the corporation.

This Year J and K Formed New Corporation In Addition the Building Was Subject to a Mortgage of Assets