Question

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Martin transfers real estate with an adjusted basis of $260000 and fair market value of $350000...

Martin transfers real estate with an adjusted basis of $260000 and fair market value of $350000 to newly formed White Corporation in exchange for 75% of the common stock of White Corporation. The real estate was encumbered by a mortgage of $275000 which White Corporation assumed. As part of the same organization, Rebecaca contribute equipment with a fair market value of $35000 and an adjusted basis of $15000 in exchange for 25% of the common stock and $10000 bond.

a) What amount of gain or loss does Martin realize and recognize on the transfer of the real estate?

b) What basis does Martin take in White Corporation stock?

c) What basis does White Corporation take in the real estate contributed by Martin?

d) What amount of gain or loss does Rebecca realize and recognize on the transfer of the equipment?

e) What basis does Rebecca take in White Corporation stock?

f) What basis does White Corporation take in the equipment contributed by Rebecca?

Solutions

Expert Solution

Total Value of White Corporation's Stock = $350,000 + $35,000 - $10,000(Bond) = $375,000

Value of 75% Stock = $281,250

Value of 25% Stock = $93,750

a) Gain Recognised by Martin

= (Value of stock Received by Martin)

Less (Adjusted Basis martin had in real Estate net of Liability)

= $281,750 - (- $15,000) = $296,250.

b)Basis that Martin take in White Corporation = Adjusted Basis he had in property Minus Liability he had on Property Add Gain recognised by Martin = $260,000 - $275,000 + $296,250 = $281,750

c) Basis to be taken by White Corporation in real estate assumed by Martin = Basis that Martin had in Real Estate Add any gain recognised by Martin on Transfer - Liability on property assumed by White Corporation

= $260,000 + $296,250 - $275,000 = $281,250

d)Gain Recognized by Rebecca

= Value of Stock Received + Value of Bonds Received -Basis in equipment transferred

=$93,750 + $10,000 - $15,000 = $88,750

e) Basis rebecca take in white corporation's Stock

= Rebecca's Adjusted basis in equipment

+ Gain recognized be rebecca on transfer

= $15000 + $88,750 = $103,750

f) Basis taken by White Corporation in Equipoment contributed by Rebecca

=Basis Rebecca had in Equipment

+ Any gain recognized by Rebecca on transfer

= $15,000 + $103,750 = $118,750

ekkarill92 answered 11 months ago

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