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 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?

Question

Quizplus · Accepted Answer

Under section 351, the transferor's tax basis in the stock received in exchange for property is equal to the tax basis of the property transferred, decreased by any liabilities assumed by the corporation.

Rachelle's tax basis in the property is $800, and the corporation assumed a liability of $100, so her adjusted tax basis is $700 ($800 - $100). The fair market value of the stock received is $750, but this is not relevant for determining her tax basis. Therefore, the answer is D) $700.

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