Leah transfers equipment (basis of $400,000 and fair market value of $500,000) for additional stock in Crow Corporation. After the transfer, Leah owns 80% of Crow's stock. Associated with the equipment is § 1245 depreciation recapture potential of $70,000. As a result of the transfer:

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The § 1245 depreciation recapture potential carries over to Crow Corporation when equipment is transferred for stock, as the transfer is generally tax-free under IRC § 351 if the transferor is in control of the corporation immediately after the exchange. Leah does not recognize any gain or loss, and the corporation inherits the equipment's tax attributes, including any § 1245 recapture potential.

Leah Transfers Equipment (Basis of $400,000 and Fair Market Value