Julia incorporated her sole proprietorship by transferring inventory, a building
ID: 2479124 • Letter: J
Question
Julia incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100% of the corporation's stock. The property trransferred to the corporaiton had the following fair market values and tax-adjusted bases. FMV Tax Basis Inventory $ 20,000 $ 10,000 Building 130,000 75,000 Land 100,000 40,000 Total $250,000 $125,000
(a) What amount of gain or loss does Julia realize on the transfer of the property to the corporation?
(b) What amount of gain or loss does Julia recognize on the transfer of the property to the corporation?
(c) What is Julia's basis in the stock she receives in the transaction?
(d) What is the corporation's basis in the assets it receives in the transaction?
(e) How would your answer change if the FMV of the Building was $125,000 and FMV of the Land was $180,000 and the mortgage attached to the Building and Land was $145,000.
Explanation / Answer
Answer:(a) Julia realizes a net gain of $125,000 on this transfer, computed as follows:
Fair market value of stock received $250,000
- Adjusted tax basis of the property transferred 125,000
Gain realized $ 125,000
Answer:b Julia does not recognize any gain or loss on the transfer because the requirements of 351 are met and no boot is received in the exchange.
Answer:(c) $125,000.Julia's tax basis in the stock received is a substituted basis of the assets transferred.
Answer:(d) The corporation receives a carryover basis in the assets received from Julia.The built-in loss rules do not apply because the total fair market value of the assets transferred exceeds the aggregate basis of the assets transferred.
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