Question

Tracy transfers property with a fair market value of $60,000 and an adjusted basis of $50,000 in exchange for all 100 shares of Riley Corporation's stock valued $60,000. Assuming it is §1231 property, what is Riley Corp.'s basis in the property?

a. $50,000.
b. $60,000.
c. $0.
d. $10,000.

Answer 1

Riley Corporation's basis in the property Tracy transferred would be Tracy's adjusted basis in the property which is $50,000.

Step-by-step explanation:

When Tracy transfers property with a fair market value of $60,000 and an adjusted basis of $50,000 to Riley Corporation in exchange for stock, the basis of the property for Riley Corporation would be the same as Tracy's adjusted basis at the time of the transfer. Therefore, the correct answer is a. $50,000. This is based on the tax principle that when property is exchanged for stock in a corporation, the corporation's basis in the property is the transferor's adjusted basis, provided the exchange is part of a qualifying transaction.