Question

Carlos transfers property with a tax basis of $500 and a fair market value of $800 to a corporation in exchange for stock with a fair market value of $650 and $50 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $100 on the property transferred. What is the corporation's tax basis in the property received in the exchange?

Answer 1

Answer: $550

Explanation: This problem can be solved as follows :-

In the above problem carlos has transferred the property as a vivos gift or as we can say in trust, therefore the carryover basis rule will come into play. carryover basis rule is used to determine tax on transfer of property from one individual to another.

therefore,

tax basis = basis of transferor  + recognised gain

              = $500 + $50

             = $550