Question

This year, John, Meg and Karen form Frost corporation. John contributes land purchased as an investment four years ago for $15,000 that has a $30,000 FMV in exchange for 30 shares of Frost stock. Meg contributes machinery (sec. 1231 property) purchased four years ago and used in her business having a $35,000 adjusted basis and a $30,000 FMV in exchange for 30 shares of Frost stock. Karen contributes services worth $20,000 in exchange for 20 shares of Frost stock. What is Meg's basis in her Frost shares? When does her holding period begin?

Answer 1

Meg's basis in her Frost shares is $35,000 and her holding period began four years ago.

Step-by-step explanation:

Meg's basis in her Frost shares would be equal to the adjusted basis of the machinery she contributed, which is $35,000.

Her holding period for the Frost shares would begin on the date she purchased the machinery, four years ago.