Rachelle transfers property with a tax basis of $980 and a fair market value of $1,280 to a corporation in exchange for stock with a fair market value of $720 and $88 incash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $472 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

Question

Quizplus · Accepted Answer

The corporation's tax basis in the property received in the exchange is equal to the sum of Rachelle's tax basis in the property transferred ($980) and the amount of the liability assumed by the corporation ($472), minus any cash received ($88). Therefore, the corporation's tax basis in the property received is calculated as follows: $980 + $472 - $88 = $1,364. However, the value of the stock received ($720) cannot exceed the fair market value of the property transferred ($1,280), so the corporation's tax basis is capped at $1,068.

Rachelle Transfers Property with a Tax Basis of $980 and a Fair