The following information applies to the questions displayedbelow.]
Kristine transferred investment property she has owned for fouryears to XYZ Corporation in exchange for 40 percent of thecorporation's stock (64 shares valued at $422,400) at the time XYZwas incorporated. The property's adjusted tax basis was $394,000and its fair market value was $422,400. Assume the transferqualifies under §351. (Loss amount should be indicated by a minussign. Leave no answer blank. Enter zero if applicable.)
a. What gain or loss does Kristine recognize on thetransfer?
b. What is her basis in the stock she received in theexchange?
c. What is her holding period in the stock?
The following information applies to the questions displayedbelow.]
Kristine transferred investment property she has owned for fouryears to XYZ Corporation in exchange for 40 percent of thecorporation's stock (64 shares valued at $422,400) at the time XYZwas incorporated. The property's adjusted tax basis was $394,000and its fair market value was $422,400. Assume the transferqualifies under §351. (Loss amount should be indicated by a minussign. Leave no answer blank. Enter zero if applicable.)
a. What gain or loss does Kristine recognize on thetransfer?
b. What is her basis in the stock she received in theexchange?
c. What is her holding period in the stock?
Related questions
Several years ago, your client, Brooks Robinson, started an office cleaning service. His business was very successful, owing much to his legacy as the greatest defensive third baseman in major league history and his nickname, âThe Human Vacuum Cleaner.â Brooks operated his business as a sole proprietorship and used the cash method of accounting. Brooks was advised by his attorney that it is too risky to operate his business as a sole proprietorship and that he should incorporate to limit his liability. Brooks has come to you for advice on the tax implications of incorporation. His balance sheet is presented below. Under the terms of the incorporation, Brooks would transfer the assets to the corporation in return for 100 percent of the companyâs common stock. The corporation would also assume the companyâs liabilities (payables and mortgage). (Negative amounts should be indicated by a minus sign. Leave no answer blank. Enter zero if applicable.)
| Balance Sheet | |||||
| Adjusted Basis | FMV | ||||
| Assets | |||||
| Accounts receivable | $ | 0 | $ | 5,000 | |
| Cleaning equipment (net) | 25,000 | 20,000 | |||
| Building | 50,000 | 75,000 | |||
| Land | 25,000 | 50,000 | |||
| Total assets | $ | 100,000 | $ | 150,000 | |
| Liabilities | |||||
| Accounts payable | $ | 0 | $ | 10,000 | |
| Salaries payable | 0 | 5,000 | |||
| Mortgage on land and building | 35,000 | 35,000 | |||
| Total liabilities | $ | 35,000 | $ | 50,000 | |
a. How much gain or loss does Brooks realize on the transfer of each asset to the corporation?
|
b. How much, if any, gain or loss (on a per asset basis) does Brooks recognize?
| Realized gain/loss | |
| Accounts receivable | |
| Equipment | |
| Building | |
| Land | |
| Total | $0 |
c. How much gain or loss, if any, must the corporation recognize on the receipt of the assets of the sole proprietorship in exchange for the corporationâs stock?
Gain or loss recognized -
d. What tax basis does Brooks have in the corporationâs stock?
|
e. What is the corporationâs tax basis in each asset it receives from Brooks?
| Tax Basis | |
| Accounts Receivable | |
| Equipment | |
| Building | |
| Land | |
| Total |
f. How much if any gain or loss will Brooks recognize if he had taken back a 10-year note worth $25,000 plus stock worth $75,000 plus the liability assumption? (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)
| Realized gain/loss | |
| Accounts receivable | |
| Equipment | |
| Building | |
| Land | |
| Total | $0 |
John borrowed $4,500 to purchase a machine. He later borrowed$2,000 using the machine as collateral. Both notes are nonrecourse.Ten years later, the machine has an adjusted basis of zero and twooutstanding not balances of $2,500 and $800. John sells the machinesubject to the two liabilities for $1,000. What is his realizedgain or loss?â
| a. | âNone of the above. | |
| b. | â$4,300 | |
| c. | â$0. | |
| d. | â$3,300. | |
| e. | â$1,000. |
10 points
QUESTION 2
Angelica purchases a house for $165,000. She converts theproperty to rental property when the fair market value is $140,000.After deducting depreciation (cost recovery) expense of $3,130, shesells the house for $100,000. What is her recognized gain orloss?â
| a. | â($65,000). | |
| b. | â($36,870). | |
| c. | âNone of the above. | |
| d. | â$0. | |
| e. | â($62,870). |
10 points
QUESTION 3
Olivia and Matthew exchange real estate in a like-kind exchange.Olivia's basis in the real estate, subject to a $100,000 mortgage,is $250,000 and the fair market value is $400,000. She receivesreal estate with a fair market value of $300,000 and Matthewassumes the mortgage. What is Olivia's recognized gain and adjustedbasis for the real estate received?â
| a. | âNone of the above. | |
| b. | â$50,000, $400,000. | |
| c. | â$100,000, $250,000. | |
| d. | â$100,000, $400,000. | |
| e. | â$0, $250,000. |
10 points
QUESTION 4
On October 1, Denise exchanged an apartment building (adjustedbasis of $575,000 and subject to a mortgage of $325,000) foranother apartment building owned by Quinn (fair market value of$850,000 and subject to a mortgage of $325,000). The propertytransfers were made subject to the outstanding mortgages. Whatamount of gain should Denise recognize?â
| a. | â$0. | |
| b. | â$50,000. | |
| c. | âNone of the above. | |
| d. | â$225,000. | |
| e. | â$275,000. |
10 points
QUESTION 5
Maple, Inc., owns a delivery truck which initially cost $40,000.After depreciation of $25,000 had been deducted, the truck wastraded-in on a new truck that cost $50,000. Maple was required topay the car dealer $20,000 in cash. What is Maple's basis for thenew truck assuming the exchange qualifies for §1031 treatment?â
| a. | â$0. | |
| b. | â$15,000. | |
| c. | â$35,000. | |
| d. | â$50,000. | |
| e. | âNone of the above. |
10 points
QUESTION 6
Miriam gifted property to her brother Aaron on January 25, 2016at which time it had a fair market value of $35,000. Miriam had anadjusted basis in the property of $40,000. Assume that Aaron soldthe property on June 20, 2016 for $90,000.
What amount should Aaron use for his basis?
| a. | â$90,000 | |
| b. | â$40,000 | |
| c. | âNone of the above | |
| d. | â$0 | |
| e. | â$35,000 |
10 points
QUESTION 7
Miriam gifted property to her brother Aaron on January 25, 2016at which time it had a fair market value of $35,000. Miriam had anadjusted basis in the property of $40,000. Assume that Aaron soldthe property on June 20, 2016 for $90,000.
â
What amount of gain/(loss) should Aaron recognize on thesale?â
| a. | âNone of the above | |
| b. | â$55,000 | |
| c. | â$50,000 | |
| d. | â$40,000 | |
| e. | â$90,000 |
10 points
QUESTION 8
Miriam gifted property to her brother Aaron on January 25, 2016at which time it had a fair market value of $35,000. Miriam had anadjusted basis in the property of $40,000.
â
What amount of gain/(loss) should Aaron recognize assuming hesold the property for $36,500 on 6/20/16?
| a. | âNone of the above. | |
| b. | $1,500 âShort-term capital gain | |
| c. | â$0 | |
| d. | â$3,500 Short-term capital loss | |
| e. | â$1,500 Long-term capital gain |
10 points
QUESTION 9
Miriam gifted property to her brother Aaron on January 25, 2016at which time it had a fair market value of $35,000. Miriam hadacquired the property in 1988 and had an adjusted basis in theproperty of $40,000.
â
What amount of gain/(loss) should Aaron recognize assuming hesold the property for $30,000 on 6/20/16?
| a. | â($5,000) Short-term Loss. | |
| b. | âNo Gain or Loss recognized. | |
| c. | âNone of the above | |
| d. | â($10,000) Short-term Loss. | |
| e. | â($10,000) Long-term Loss. |
10 points
QUESTION 10
Miriam gifted property to her brother Aaron on January 25, 2016at which time it had a fair market value of $90,000. Miriamacquired the property in 1966 and had an adjusted basis in theproperty of $40,000.
â
What amount of gain/(loss) should Aaron recognize assuming hesold the property for $100,000 on 6/20/16?
| a. | â$10,000 Long-term capital gain. | |
| b. | âNone of the above. | |
| c. | â$10,000 Short-term capital gain. | |
| d. | â$60,000 Long-term capital gain. | |
| e. | â$60,000 Short-term capital gain. |
