Question

Celeste transferred 100 percent of her stock in Supply Chain Company to Marketing Corporation in a Type A merger. In exchange, she received stock in Marketing with a fair market value of $500,000 plus $500,000 in cash. Celeste's tax basis in the Supply Chain stock was $1,200,000. What amount of loss does Celeste recognize in the exchange and what is her basis in the Marketing stock she receives

Answer 1

Loss = $200,000

Stock basis = $700,000

Step-by-step explanation:

The computation of loss and stock basis is shown below:-

Since there is exchange in deferred tax so no loss will be recognized

Stock basis = Carryover Basis - Cash received

= $1,200,000 - $500,000

= $700,000

Therefore, if Celeste sell stocks $700,000, she will be in loss of $200,000

= $700,000 - $500,000

= $200,000