Harry forms the Nectarine Corporation during the current tax year. To form the corporation, Harry transfers assets having a fair market value of $650,000 to Nectarine Corporation for 100 percent of the corporation's stock. Harry's adjusted basis in the assets transferred was $375,000 and Nectarine Corporation assumed a $200,000 mortgage on the assets. If the fair market value of the stock received by Harry is $450,000, what is his basis in the stock received from the corporation?

Question

Quizplus · Accepted Answer

The basis of the stock received by Harry is calculated as follows:
Adjusted basis of transferred assets ($375,000) + Mortgages assumed by corporation ($200,000) - Fair market value of stock received ($450,000) = Basis in stock received ($125,000)

Therefore, Harry’s basis in the stock received from the corporation is $125,000.

Harry Forms the Nectarine Corporation During the Current Tax Year