Question

Brendan transfers a building with a value of $300,000 (adjusted basis = $120,000) to Fours Corp. in exchange for stock worth $100,000. As part of the transfer, Fours assumes the $200,000 mortgage on the building. What is Brendan's gain realized, gain recognized, and basis in Fours stock?

Answer 1

Brendan's gain realized is $180,000, the gain recognized is $100,000, and Brendan's basis in the Fours stock is $220,000.

Step-by-step explanation:

In this case, Brendan's gain realized is the fair market value of the stock received ($100,000) plus the amount of the mortgage assumed by Fours Corp ($200,000), minus the adjusted basis of the building ($120,000). So, the gain realized is $180,000 ($100,000 + $200,000 - $120,000).

The gain recognized is the lesser of the gain realized ($180,000) or the amount of boot received ($100,000 in stock). So, the gain recognized is $100,000.

Brendan's basis in the Fours stock is the adjusted basis of the building transferred ($120,000) plus the amount of the mortgage assumed by Fours Corp ($200,000), minus the gain recognized ($100,000). Therefore, Brendan's basis in the Fours stock is $220,000 ($120,000 + $200,000 - $100,000).