In a § 351 transaction, Gerald transfers equipment worth $85,000 (basis of $120,000) in exchange for all of the Rust Corporation stock. Gerald's stock basis is $120,000 and Rust's basis in the equipment is $120,000.

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In a § 351 transaction, the corporation's basis in the property received is the same as the transferor's adjusted basis, which is $120,000. However, the transferor's basis in the stock received is the same as the basis of the property transferred, decreased by any money received and increased by any gain recognized. Since no gain is recognized and no money is received, Gerald's stock basis is $120,000.

In a § 351 Transaction, Gerald Transfers Equipment Worth $85,000