Daisy bought a piece of land 3 years ago for $1. Today the fair market value...

Daisy bought a piece of land 3 years ago for $1. Today the fair market value of the land is $100 and she transfers it to Flower Inc in exchange for all 100 shares of Flower’s voting common stock worth $100. There are no other shareholders

Does Daisy recognize gain on the transfer?

What is Daisy's basis in the stock?

What is Daisy’s holding period in the stock?

What is Flower’s basis in the land?

What is Flower’s holding period for the land?

Expert Solution

Solution:

As per taxation provisions, Neither gain nor loss is recognized upon the transfer by one or more persons of property to a corporation solely in exchange for stock in that corporation if, immediately after the exchange, such person or persons control the corporation.

Therefore in the given case land was transferred by daisy in exchange of shares and after exchange daisly will control the Flower INC, therefore daisy will not recognize gain on transfer.

Daisy basis in stock = Adjusted basis of property transferred + Gain recognized - Boot received
= $1 + 0 - 0 = $1

As per provisions, The shareholder's holding period for the stock includes the holding period of any capital assets or Sec. 1231 assets transferred

Therefore daisy's holding period in stock will be 3 years.

Flower basis in land = Adjusted basis of property to transferor + Gain recognized by transferor

= $1 + $0 = $1

As per taxation provisions, The transferee corporation's holding period includes the period of time the property was held by the transferor

Therefore flower's holding period for land will be 3 years.

ekkarill92 answered 1 year ago

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