Share
Explore BrainMass

Taxation: Realized, Recognized Transfer of Property, basis

Zhang 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 transferred to the corporation had the following Fair Market Value and Tax Adjusted Basis.

FMV Tax Adjusted Basis
Inventory $ 20,000 $ 10,000
Building 150,000 100,000
Land 230,000 300,000
Totals $ 400,000 $ 410,000

Corporation took over Mortgage $100,000 (which is attached to land & building)
Corporation Stock FMV $300,000 (Tax Deferred applicable to Section 351)

a. What amount of Gain or Loss must Zhang realize on the transfer of the property to the corporation?
300,000 - 100,000 - 410,000 = 10,000 loss

b. What amount of Gain or Loss must Zhang recognized on the transfer of the property to her corporation?
Same as a

c. What is Zhangs's Adjusted Tax Basis in property received?
410,000 - 310,000 - 100,000 = 0

d. What is the Corporation's Adjusted Tax Basis for each of the properties?
subtracted the FMV MINUS Tax Adjusted Basis for each item
Inventory 10,000 Gain Building 140,000 Gain Land 70,000 Loss

Solution Preview

a. What amount of Gain or Loss must Zhang realize on the transfer of the property to the corporation?
300,000 + 100,000 - 410,000 = 10,000 loss

You are correct, but it is not treated as a loss when transferred. She will not recognize that loss until she sells or liquidates the stock in the corporation.

b. What amount of Gain or Loss must Zhang recognized on the transfer of the property to her ...

Solution Summary

The cited solutions are clearly explained and calculated.

$2.19