Zhang incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and adjusted bases: FMV Adjusted Basis Inventory 20,000 10,000 Building 150,000 100,000 land 230,000 300,000 The corporation also assumed a mortgage of $100,000 attached to the building and land. The fair market value of the corporation's stock received in the exchange was $300,000. The transaction met the requirements to be tax-deferred under §351. (Negative amount should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.) a. What is the corporation's adjusted basis in each of the assets received in the exchange?
Zhang incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and adjusted bases:
FMV Adjusted Basis
Inventory 20,000 10,000
Building 150,000 100,000
land 230,000 300,000
The corporation also assumed a mortgage of $100,000 attached to the building and land. The fair market value of the corporation's stock received in the exchange was $300,000. The transaction met the requirements to be tax-deferred under §351. (Negative amount should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.)
a. What is the corporation's adjusted basis in each of the assets received in the exchange?
Assume the corporation assumed a mortgage of $500,000 attached to the building and land. Assume the fair market value of the building is now $250,000and the fair market value of the land is $530,000. The fair market value of the stock remains $300,000.
e. How much, if any, gain or loss does Zhang recognize on the exchange assuming the revised facts?
The corporation basis will be the carryover basis and reduced by any net built-in loss, which is finally allocated to land. First, the realized gain or loss is determined. If there is gain then it will be allocated to the assets received by the corporation in proportion to the asset's relative fair market values. If there is a loss then it will be allocated to the land.
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