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 Rachelle's tax basis in the stock received in the exchange?
A) $900
B) $850
C) $750
D) $700

Question

Quizplus · Accepted Answer

The shareholder's tax basis equals her tax basis in the property transferred of $800 (a substituted basis) plus gain recognized of $50 less cash received of $50 less the $100 liability assumed by the corporation. If Rachelle sells the stock for $750, the gain recognized will be $50, an amount equal to the gain deferred of $50.

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