Rick transferred the following assets and liabilities to Warbler Corporation.

In return Rick received $75,000 in cash plus 90% of Warbler Corporation's only class of stock outstanding (fair market value of $225,000).

Question

Rick transferred the following assets and liabilities to Warbler Corporation.

In return Rick received $75,000 in cash plus 90% of Warbler Corporation's only class of stock outstanding (fair market value of $225,000).

Quizplus · Accepted Answer

Rick has a realized gain of $60,000 determined as follows.
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Because recognized gain cannot exceed the lesser of the realized gain ($60,000)or the boot received ($75,000),the recognized gain is $60,000.
Rick's basis in the Warbler Corporation stock is $225,000 [$270,000 (basis of property transferred)- $75,000 (boot received)- $30,000 (liability transferred)+ $60,000 (gain recognized)].
Warbler Corporation's basis in the property transferred is $330,000 [$270,000 (basis in the property transferred)+ $60,000 (gain recognized)].

Rick Transferred the Following Assets and Liabilities to Warbler Corporation