Mary transfers equipment (basis of $25,000 and fair market value of $120,000)to White Corporation. In return,Mary receives 80% of White Corporation's stock (worth $70,000)and an automobile (fair market value of $15,000). In addition,there is an outstanding mortgage of $35,000 (taken out 5 years ago)on the equipment,which White Corporation assumes. With respect to this transaction:

Question

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As a result of the transfer,Mary receives boot of $15,000 (fair market value of the automobile)and has additional gain of $10,000 (excess of the mortgage over the basis of the equipment). Since the sum of these amounts is less than the realized gain of $95,000,$25,000 is recognized under § 351(b). White Corporation's basis in the equipment is $50,000 [$25,000 (Mary's basis in the equipment)+ $25,000 (Mary's recognized gain)].

Mary Transfers Equipment (Basis of $25,000 and Fair Market Value