Rachelle transfers property with a tax basis of $800 and a fair market value of $900 to a corporation in exchange for stock with a fair market value of $750 and $50 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $100 on the property transferred. What is the corporation's tax basis in the property received in the exchange?
A)$900
B)$850
C)$800
D)$750

Question

Quizplus · Accepted Answer

The corporation's tax basis in the property received in the exchange is the sum of the adjusted basis of the property ($800) and any liability assumed by the corporation ($100), or $900. However, the fair market value of the stock and cash received is only $800 ($750 + $50), so the corporation's tax basis in the property received is limited to that amount. Therefore, the corporation's tax basis in the property received is $800, plus the amount of the liability assumed ($100), minus the amount of cash received ($50), or $850.

Rachelle Transfers Property with a Tax Basis of $800 and a Fair