Benedict transfers land with a FMV of $900,000 to a newly-formed corporation in exchange for all of the stock.The land has a basis of $500,000 and debt of $300,000.The basis of the land,in the hands of the corporation is:

Question

Quizplus · Accepted Answer

The basis of the land in the hands of the corporation is $500,000. This is because under Section 351 of the Internal Revenue Code, when property is transferred to a corporation by one or more persons in exchange for stock in such corporation, and immediately after the exchange such person or persons are in control of the corporation, the basis of the property in the hands of the transferee corporation is the same as it would be in the hands of the transferor. This is known as a carryover basis. The debt on the property does not affect the basis of the property in the hands of the corporation.

Benedict Transfers Land with a FMV of $900,000 to a Newly-Formed