Question

In the current year, Mick, Hank, and Lulu form Hades Corporation Mick contributes land (a capital asset) having a $125,000 FMV in exchange for 145 shares of Hades stock. Ho purchased the land three years ago for $140,000 Hank contributos machinery (Sec. 1231 property purchased four years ago) having a $130,000 adjusted basis and a $75,000 FMV in exchange for 105 shares of Hades stock Lulu contributes services worth $50,000 in exchange for 40 shares of Hades stock Read the requirements Requirement a. What is the amount of Mick's recognized gain or loss? Mick realizes a $ 15,000 loss and recognizes no gain or loss Requirement b. What is Mick's basis in his Hades shares? When does hus holding period begin? Mick's basis in the Hades shares is $ and his holding period for the stock is deemed to begin when Mick originally

Answer 1

Purchase Price of the Land Less Fair Market Value of Land Mick's realized Loss 140000 125000 15000 Mick's recognized no gain no loss because according to Sec.351 whe the property is exchanged for stock neither the transferor nor transferee corporation recognizes gain or loss. Therefore, Mick recognized no gain no loss. What is Mick's basis in his Hades shares? When does his holding period begin? Mick's basis in the Hades shares is $140000 and his holding period for the stock is deemed to begin on the date after the exchange date or three years ago when Mick originally purchased the land