Molly and Dolly form MD Corporation. Molly transfers a building with a fair market value of $800,000 and a basis of $400,000 that is encumbered by a $100,000 mortgage that the corporation assumes in exchange for 50 percent of MD's stock (fair market value = $700,000). Dolly contributes equipment valued at $900,000 with a basis of $500,000 that is encumbered by a $200,000 liability that the corporation assumes in exchange for the other 50 percent of MD's stock. What are Molly and Dolly's realized and recognized gains and their bases in the stock received.
-Refer to the information in the preceding problem. How would your answers change if Molly and Dolly formed a general partnership in which they were equal partners instead of a corporation?

Question

Quizplus · Accepted Answer

The Answer is Molly and Dolly's realized and recognized gains do not change; nor does the partnership's bases in the building and equipment. Molly and Dolly's bases in their partnership interests change, however: Molly: $400,000 - $100,000 liability assumed + $150,000 (50% of $300,000 total liabilities assumed by partnership) = $450,000; Dolly: $500,000 - $200,000 + $150,000 = $450,000.

Molly and Dolly Form MD Corporation