Question

Amy transfers property with a tax basis of $1,755 and a fair market value of $1,085 to a corporation in exchange for stock with a fair market value of $630 in a transaction that qualifies for deferred under section 351. The corporation assumed a liability of $455 on the property transferred. What is Amy's tax basis in the stock received in the exchange

Answer 1

Amy's tax basis in the stock received from the property exchange under deferred Section 351 is calculated by subtracting the liability assumed by the corporation from her original tax basis in the property. Her tax basis in the stock would therefore be $1,300.

Step-by-step explanation:

Amy's tax basis in the stock received after the exchange can be calculated by considering her original basis in the property transferred, adjusted for any liabilities assumed by the corporation. The formula for the tax basis in the stock received in this context is: Amy's original tax basis in the property minus the liability assumed by the corporation plus any gain recognized, if applicable.

• Original tax basis of the property: $1,755
• Liability assumed by the corporation: $455

Therefore, Amy's tax basis in the stock will be:

$1,755 (original basis) - $455 (liability assumed) = $1,300

Amy's tax basis in her stock is thus $1,300.

It's important to note that normally, in transactions qualifying for deferred tax under Section 351, no gain or loss is recognized unless other stipulations apply, such as boot (cash or other property) being also received in the transaction.

Answer 2

$175 is Amy's tax basis in the stock received in the exchange

Solution:

The principle of taxes of the owner is equal in the exchanged land,

when the company assumes responsibility.

If Amy is to sell the stock at $630,

the loss is (630-455) $175,

equivalent to $175, which is the amount of a late loss.