Explore BrainMass

Scott MacDonald Transfers Land with an Adjusted Basis.

I am having problems with calculating basis.
Scott MacDonald transfers land with an adjusted basis of $150,000 for stock in P. D. Graphics, Inc. worth $250,000, $50,000 in cash, nonqualified preferred stock worth $100,000, and P. D. Graphics' agreement to assume an $80,000 liability on the land. After the transfer, Scott owns 90% of the voting stock of P. D. Graphics. How much gain does Scott have to recognize? What is his basis in the stock?

Scott realizes $330,000 in gain [($250,000 + $50,000 + $100,000 + $80,000) - $150,000]. Since he owns at least 80% of P. D. Graphics after the transfer, the transfer qualifies for nonrecognition treatment, and Scott only has to recognize the amount of boot received. In this case, his boot is the $50,000 in cash and $100,000 in nonqualified preferred stock. P.D. Graphics' assumption of the $80,000 liability is not treated as boot. Calculate the amount of gain Scott must recognize and his adjusted cost base.

Solution Preview

He transferred land with a basis of $150,000. There was an 80,000 liability on the land, which automatically reduces the basis from 150,000 ...

Solution Summary

This solution calculates the gain recognized by Scott MacDonald and the basis of his stock for transferring land with an adjusted basis of $150,000, $50,000 in cash, nonqualified preferred stock, and a liability on the land.

This solution thoroughly explains how the answer was derived and includes all necessary calculations. Additional resources for Section 351 Exchanges are also provided for further student expansion.