Amy transfers property with a tax basis of $1,455 and a fair market value of $1,095 to a corporation in exchange for stock with a fair market value of $850 in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $245 on the property transferred. What is Amy's tax basis in the stock received in the exchange?

Question

Quizplus · Accepted Answer

Under section 351, when property is transferred to a corporation in exchange for stock and the transferors receive stock in return, the transferors do not recognize any gain or loss on the transfer. Instead, their tax basis in the stock received is equal to the tax basis of the property transferred plus any liabilities assumed by the corporation.

In this case, Amy's tax basis in the property transferred is $1,455, and the corporation assumed a liability of $245, so her tax basis in the stock received is $1,455 + $245 = $1,700. However, the fair market value of the stock received is only $850, so Amy's tax basis in the stock is limited to that amount. Therefore, her tax basis in the stock received is $850.

Choice B is the correct answer.

Amy Transfers Property with a Tax Basis of $1,455 and a Fair