Jane Freeman transferred three properties to Health Innovations Corporation: An office building, office equipment in that...

Jane Freeman transferred three properties to Health Innovations Corporation: An office building, office equipment in that building, and an adjacent parking garage, in a Sec. 351 exchange, as shown in the table below:

Property	Adjusted Basis	FMV
Office building	$80,000	$110,000
Office equipment	2,000	1,500
Parking Garage	15,000	12,000
	$ 97,000	$123,500

The garage and equipment are free of liabilities, but a $110,000 mortgage remains on the office building. Complete calculations and explain your answers to these questions, referencing all applicable sections of the Internal Revenue Code:

If Health Innovations assumes the mortgage, what gains and tax-related effects would Freeman and Health Innovations sustain?

What if Health Innovations does not assume the mortgage? What gains and tax-related effects would Freeman and Health Innovations sustain?

Expert Solution

Section 351 of the Internal revenue Code says that no gain or loss shall be recognized if property is transferred to a corporation by one or more persons solely in exchange for stock in such corporation and immediately after the exchange such person or persons are in control of the corporation.

Tax liability if Health Innovation assumes mortgage:

As per Internal Revenus Code, gain shall be recognized, but not in excess —

(A)the amount of money received, plus

(B)the fair market value of received; and

(2)no loss to such recipient shall be recognized.

It means, gain can not be more than the FMV. Hence gain in this case will be $ 123,500.

Tax liability if Health Innovation does not assume mortgage:

ekkarill92 answered 1 year ago

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