Question

In a Section 351 transaction, Brian contributed a building with a basis of $200,000 and a FMV of $400,000 in exchange for Orange Corporation stock. The building was subject to a $100,000 mortgage assumed by Orange Corporation. What is Brian's basis in the Orange Corporation stock?

A. $100,000
B. $200,000
C. $300,000
D. $400,000

Answer 1

Brian's basis in Orange Corporation stock in a Section 351 transaction, after accounting for the $100,000 mortgage assumed by the corporation, is $100,000.

Step-by-step explanation:

In a Section 351 transaction, where Brian contributed a building with a basis of $200,000 and a fair market value (FMV) of $400,000 to Orange Corporation in exchange for its stock, the basis of the Orange Corporation stock he receives is calculated by taking the basis of the contributed property and adjusting it for any gain recognized and liabilities assumed by the corporation. Since the corporation assumed a $100,000 mortgage, which is considered a liability, Brian's basis in the Orange Corporation stock would be his original basis of $200,000 minus the liability of $100,000, which equals $100,000. Therefore, the correct answer is A. $100,000.