Ashley transfers property with a tax basis of $8,240 and a fair market value of $4,840 to a corporation in exchange for stock with a fair market value of $3,400 and $525 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $915 on the property transferred. What is Ashley's tax basis in the stock received in the exchange?

Question

Quizplus · Accepted Answer

Under section 351, if a transfer of property to a corporation is in exchange solely for stock, no gain or loss will be recognized. The tax basis of the property transferred will be carried over to the stock received. In this case, Ashley transferred property with a tax basis of $8,240 and received stock with a fair market value of $3,400. However, the corporation assumed a liability of $915 on the property transferred. Thus, the total value of stock received by Ashley is $3,400 - $915 = $2,485. Therefore, Ashley's tax basis in the stock received is $8,240 - $2,485 = $5,755.

Ashley Transfers Property with a Tax Basis of $8,240 and a Fair