Rob and Fran form Bluebird Corporation with the following investments. Adjusted Basis Fair Market Value From Rob- Cash $400,000 $400,000 From Fran- Land 500,000 440,000 Each receives 50% of Bluebird's stock.In addition,Fran receives cash of $40,000.One result of these transfers is that Fran has a:

Question

Rob and Fran form Bluebird Corporation with the following investments. Adjusted Basis Fair Market Value From Rob- Cash $400,000 $400,000 From Fran- Land 500,000 440,000 ​ Each receives 50% of Bluebird's stock.In addition,Fran receives cash of $40,000.One result of these transfers is that Fran has a:

Quizplus · Accepted Answer

Since Fran transferred land with a fair market value lower than its adjusted basis, she will recognize a loss of $60,000 ($500,000 - $440,000 = $60,000). This loss reduces Fran's basis in the Bluebird stock to $460,000 ($500,000 - $60,000 = $440,000). Additionally, the Bluebird Corporation will need to reduce the basis of the land to its fair market value of $440,000.

Rob and Fran Form Bluebird Corporation with the Following Investments