Roy transfers property with a tax basis of $800 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $400 and $50 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $50 on the property transferred. What is Roy's tax basis in the stock received in the exchange?

Question

Quizplus · Accepted Answer

The shareholder's tax basis equals his tax basis in the property transferred of $800 (a substituted basis) less the $50 liability assumed by the corporation less the fair market value of boot received. If Roy sells the stock for $400, the loss recognized will be $300, an amount equal to the loss deferred of $300.

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