Kristine transferred investment property she has owned for six years to XYZ Corp
ID: 2547126 • Letter: K
Question
Kristine transferred investment property she has owned for six years to XYZ Corporation in exchange for 40 percent of the corporation's stock (40 shares valued at $160,000) at the time XYZ was incorporated. The property's adjusted tax basis was $90,000 and its fair market value was $160,000. Assume the transfer qualifies under §351.
a. What gain or loss does Kristine recognize on the transfer?
b. What is her basis in the stock she received in the exchange?
c. What is her holding period in the stock?
Explanation / Answer
Answer
A.
As per under §351:
No gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control (as defined in section 368(c)) of the corporation.
B.
her basis in the stock she received in the exchange = Tax basis+ Gain recognized on the transfer
= $90000 + $0 = $90000
C.
Holding Period in the stock will include the holding period of the property as per the provision of the IRS section 351 . So her holding period in Stock will be 6 years.
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