Rachelle transfers property with a tax basis of $825 and a fair market value of $1,300 to a corporation in exchange for stock with a fair market value of $700 and $214 incash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $386 on the property transferred. What is the corporation's tax basis in the property received in the exchange?
A)$1,300
B)$1,039
C)$825
D)$700

Question

Quizplus · Accepted Answer

The corporation's tax basis in the property received in the exchange is calculated as follows:
Fair Market Value of Stock Received: $700
Plus Cash Received: $214
Plus Assumed Liability: $386
Total Consideration: $1,300
Since this is a Section 351 transaction, Rachelle's tax basis in the stock received by her in the exchange is the same as her tax basis in the property transferred. Therefore, the corporation's tax basis in the property received is also $825.
However, since the corporation also assumed a liability of $386, we need to adjust the basis as follows:
Adjusted Basis: $825 - $386 = $439
Therefore, choice B ($1,039) is the correct answer.

Rachelle Transfers Property with a Tax Basis of $825 and a Fair