Question

Tracy transfers property with a value of $60,000 and adjusted basis of $50,000 to form Riley Corp. solely in exchange for all 100 shares of Riley stock valued $60,000. What is Riley Corp.'s basis in the property

Answer 1

$60,000

Step-by-step explanation:

Tracy's basis on the transfer is $50,000 and the amount realized is $60,000.

So Tracy should have a realized gain of $10,000, but Section 351 states that no gain or loss must be recognized when one person transfers property in exchange for a corporation's stock if immediately after the transfer, the person controls the corporation. In this case, Tracy will own 100% of Riley Corp., so she doesn't have to recognize any gain.

Riley Corp.'s basis on the property will be $60,000 which is equal to the fair market value and the value realized by Tracy.