Mandel transferred property to his new corporation in a section 351 transaction. One of the properties transferred was land with a fair market value of $200,000 and a tax basis of $250,000. In all cases, the corporation will always take a tax basis in the land of $200,000 to prevent the "built-in loss" from being transferred from Mandel to the corporation.

Question

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In a section 351 transaction, the corporation generally takes a carryover basis in the property, which means it would take the land at Mandel's tax basis of $250,000, not the fair market value of $200,000. However, there are specific rules to prevent built-in losses from being transferred, such as a potential basis adjustment, but it is not automatic that the corporation takes the fair market value as the basis.

Mandel Transferred Property to His New Corporation in a Section