Question

Johanne transferred investment property to S&J Corporation in exchange for 60 percent of the S&J Corporation stock (65 shares valued at $214,500). The property's fair market value was $267,000 and its adjusted basis to Johanne was $43,500. The investment property was subject to a $52,500 mortgage that S&J Corporation assumed on the transfer (not treated as boot)a. Assuming the transfer qualifies under Sec.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 $46,200 and an adjusted basis of $28,900 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?

Answer 1

Consider the following calculations

Step-by-step explanation:

Answer:a $9,000 capital gain. Even though Johanne did not receive boot in the exchange, he still must recognize a $9,000 gain because the $52,500 mortgage assumed by S&J Corporation on the exchange exceeds the $43,500 basis of the property Johanne transferred by $9,000 ($52500 liabilities minus $43,500 adjusted basis transferred = $9,000 recognized gain). The gain is a capital gain because the property was a capital (investment) asset to Johanne.

Answer:b $0, computed as follows:

Basis of investment property contributed 43500

Gain recognized on the transfer 9000

Fair market value of boot received 0

Liabilities assumed by the corporation on property contributed 52500

Tax basis of stock received 0

Answer:c $0. John did not receive any boot and the $52,500 mortgage assumed by S&J Corporation does not exceed the $72,400 aggregate basis of the assets John transferred to S&J ($43,500 basis of land + $28,900 basis of inventory).

Answer: d $19900, computed as follows:

Basis of investment property ($43500) + basis of inventory ($28900) contributed 72400

Gain recognized on the transfer 0

Fair market value of boot received 0

Liabilities assumed by the corporation on property contributed 52500

Tax basis of stock received 19900

Answer:e $0. Johanne did not receive boot in the exchange and because the liabilities would give rise to a deduction when paid, the liabilities do not count as liabilities for purposes of the liabilities in excess of basis test.

Answer .f $43500

Basis of investment property contributed 43500

Gain recognized on the transfer 0

Fair market value of boot received 0

Liabilities assumed by the corporation on property contributed 0

Tax basis of stock received 43500