Max transfers the following properties to a newly created corporation for $90,000 of stock and $10,000 cash in a transaction that qualifies under Sec. 351. Max's recognized gain is
A)$3,000.
B)$5,000.
C)$7,000.
D)$10,000.

Question

Max transfers the following properties to a newly created corporation for $90,000 of stock and $10,000 cash in a transaction that qualifies under Sec. 351.  Max's recognized gain is
A)$3,000. 
B)$5,000. 
C)$7,000. 
D)$10,000.

Quizplus · Accepted Answer

Max's recognized gain is calculated by subtracting his adjusted basis in the properties transferred from the total value of the consideration received. Max transferred properties worth $100,000 ($90,000 stock + $10,000 cash) and assuming his adjusted basis in those properties is $93,000, his recognized gain would be $7,000 ($100,000 - $93,000). Therefore, choice C is the correct answer.

Max Transfers the Following Properties to a Newly Created Corporation