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Jack transferred property with an adjusted basis of $45,000 to JKL Corporation. There was a $35,000...

Jack transferred property with an adjusted basis of $45,000 to JKL Corporation. There was a $35,000 mortgage on the property. In exchange for the transferred property, Jack received stock with a fair market value of $65,000 and $25,000 cash, and the corporation assumed the liability on the property. How much gain is recognized by Jack?

A. $0

B. $20,000

C. $25,000

D. $35,000

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Answer #1

Solution:

It is assumed that transfer falls in section 351 catgory.

Amount realized = $65,000 + $25,000 + $35,000 = $125,000

Adjusted basis of property transferred = $45,000

Gain realized = $125,000 - $45,000 = $80,000

Gain to be recognized by Jack = Lower of gain realized or FMV of boot received

Gain realized = $80,000

FMV of boot received = $25,000

Therefore recognized gain = $25,000

Hence option C is correct.

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