Question

Sadek contributes cash of $10,000, land with a value of $400,000 (basis = $200,000), and equipment with a value of $20,000 (basis = $0) to a corporation in a tax-defered Section 351 transaction. What is Sadek's basis in the new corporation stock?

Answer 1

Sadek's basis in the new corporation stock after contributing cash, land, and equipment in a tax-deferred Section 351 transaction is $210,000. This amount is the sum of the basis of the land ($200,000), equipment ($0), and the cash contributed ($10,000).

Step-by-step explanation:

Under Section 351 of the Internal Revenue Code, if a person transfers property to a corporation in exchange for stock in such corporation and immediately afterward is in control of the corporation, the transaction is generally tax-deferred. For Sadek, who contributes cash of $10,000, land, and equipment to the corporation, his basis in the new corporation stock would generally be the same as the basis of the property he contributed, adjusted for any cash given or received.

Sadek's total basis in the new corporation is the sum of the basis of the land he contributed ($200,000), the basis in the equipment ($0, because it was stated to have a basis of $0), and the cash contributed ($10,000). However, the actual calculation may require additional information regarding liabilities and other factors, but based solely on the provided information, Sadek's basis in the new corporation stock would be his adjusted basis in the land plus the basis in the equipment and any cash contributed.