Johanne transferred investment property to S&J Corporation in exchange for 60 pe

Question

Johanne transferred investment property to S&J Corporation in exchange for 60 percent of the S&J Corporation stock (30 shares valued at $96,000). The property's fair market value was $184,000 and its adjusted basis to Johanne was $80,450. The investment property was subject to a $88,000 mortgage that S&J Corporation assumed on the transfer (not treated as boot). (Leave no answer blank. Enter zero if applicable.)

A. Assuming the transfer qualifies under §351, what is the amount and character of the gain Johanne must recognize on the exchange?

B.What is Johanne's adjusted basis in the S&J stock he received in the exchange?

Assume that in in addition to the investment property, Johanne transferred inventory with a fair market value of $43,100 and an adjusted basis of $23,900 for additional S&J Corporation stock. What is the amount and character of gain Johanne must recognize on the exchange of the land and inventory for stock?

E.Assume the original facts except that the liability assumed by S&J corporation would give rise to a deduction when paid. What is the amount and character of gain Johanne must recognize on the exchange?

Johanne transferred investment property to S&J Corporation in exchange for 60 percent of the S&J Corporation stock (30 shares valued at $96,000). The property's fair market value was $184,000 and its adjusted basis to Johanne was $80,450. The investment property was subject to a $88,000 mortgage that S&J Corporation assumed on the transfer (not treated as boot). (Leave no answer blank. Enter zero if applicable.)

A. Assuming the transfer qualifies under §351, what is the amount and character of the gain Johanne must recognize on the exchange?

B.What is Johanne's adjusted basis in the S&J stock he received in the exchange?

c.

Assume that in in addition to the investment property, Johanne transferred inventory with a fair market value of $43,100 and an adjusted basis of $23,900 for additional S&J Corporation stock. What is the amount and character of gain Johanne must recognize on the exchange of the land and inventory for stock?

D.Assuming the facts in c., what is Johanne's basis in the S&J stock he received in the exchange?

E.Assume the original facts except that the liability assumed by S&J corporation would give rise to a deduction when paid. What is the amount and character of gain Johanne must recognize on the exchange?

F.Assuming the facts in e., what is Johanne's basis in the S&J stock he received in the exchange?

Explanation / Answer

Since, there are multiple parts to the question, the first four (A to D) have been answered.

Since, there are multiple parts to the question, the first four (A to D) have been answered.

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Part A)

The amount of gain realized from the transaction is the difference between the adjusted basis of the property and the mortgage assumed by S&J corporation. This rule is applicable even when no boot has been received Johanne. Therefore, the amount of gain is $7,550 (88,000 - 80450). This gain will be considered as a "Capital Gain" because the property was a capital asset in the hands of Johanne.

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Part B)

Johanne's adjusted basis in the stock received in exchange is 0. The calculation has been shown with the use of following table:

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Part C)

The amount of gain would be 0 in this case. It is so because no boot was received by Johanne and the amount of mortgage assumed by S&J corporation didn't exceed the total adjusted basis of assets transferred by Johanne. That is, the amount of mortgage of $88,000 was less than the total adjusted basis of $104,350 (80,450 + 23,900).

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Part D)

Johanne's adjusted basis in the stock received in exchange is $16,350. The calculation has been shown with the use of following table:

Basis of Investment Property Contributed 80,450 Gain Realized on Transfer (88,000 – 80,450) 7,550 Less Fair Market of Boot (if any) 0 Liabilities Assumed by S&J Corporation -88,000 Adjusted Tax Basis of Stock Received 0

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