Roy transfers property with a tax basis of $800 and a fair market value of $500 to a corporation in exchange for stock with a fair market value of $400 and $50 cash in a transaction that qualifies for deferral under section 351.The corporation assumed a liability of $50 on the property transferred.What is Roy's tax basis in the stock received in the exchange?
A)$800.
B)$750.
C)$700.
D)$500.

Question

Quizplus · Accepted Answer

Under section 351, the transfer of property to a corporation in exchange for stock qualifies for deferral of gain or loss recognition if certain requirements are met, including the requirement that the transferor receives solely stock and/or securities in exchange for the property transferred. In this scenario, Roy received stock with a fair market value of $400 and $50 cash, for a total value of $450. Since the fair market value of the property transferred was $500 and the corporation assumed a liability of $50, Roy's adjusted basis in the property transferred is also $500. Therefore, his tax basis in the stock received is $450 (the fair market value of the stock received) minus $50 (the cash received), which is $400. However, since the tax basis of the property transferred was $500 and the fair market value of the stock received was only $400, Roy has a recognized loss of $100, which will be deferred until he sells or disposes of the stock.

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