Final answer:
In the transaction described, Gigi's basis in the Section 1244 stock she receives from Monarch Corporation would be $60,000, equivalent to her cost basis in the real estate transferred.
Step-by-step explanation:
When Gigi transfers real estate with a cost basis of $60,000 and a fair market value of $40,000 to Monarch Corporation in exchange for Section 1244 stock in a transaction qualifying under Section 351, her basis in the Monarch Corporation stock received would be the same as her basis in the real estate transferred, assuming no election is made to reduce the stock basis. Therefore, Gigi's basis in the stock would be $60,000. This is derived from Section 351 of the Internal Revenue Code, which allows for the deferral of recognition of gain or loss on the transfer of property to a corporation in exchange for its stock, as long as certain conditions are met, namely that the transferor is in control of the corporation immediately after the exchange.