[ahugemistake]

On April 1, 2018, Crowe and Greene formed Apex Corporation. The same day Crowe paid $150,000 for 500 shares of Apex common stock, and Greene transferred land and building to Apex in exchange for 500 shares of common stock. The land and building had an adjusted basis to Greene of $120,000, a fair market value of $200,000, and was subject to a mortgage of $60,000 on April 1, 2018. The mortgage was assumed by Apex. Apex had no other shares of stock outstanding on April 1, 2018. The basis of the land and building to Apex on April 1, 2018, is

Answer: $120,000

This answer is correct. The land and building were transferred by Greene in a nontaxable Sec. 351 transfer to a controlled corporation. The basis of the land and building to Apex would be the same as Greene’s adjusted basis, increased by any gain recognized by Greene. Since Greene did not receive any boot, no gain was recognized by him. Apex’s basis for the land and building is $120,000.

I thought when the corp assumed the liability that would be treated as boot and trigger a gain for the shareholder?

FAR - 78*
AUD - 66, 79
REG - 73, 76
BEC - 79

[sg235]

Assumption of liabilities do not trigger a gain under sec 351.

Loan impacts the stockholder’s basis though..
Adjusted basis of property transferred
+ gain such as income from svc provided
-boot recd
– liability assumed by corp
= stock basis

The only way it would be a gain is if the loan amount exceeded basis.. since you can’t have negative basis then you take a gain to zero out the basis.

Ex: AB of bldg contributed 40k
Less: debt assumed (54k)
Negative basis 14k since you can’t have negative basis you recognize 14k gain and being basis to 0.

[ahugemistake]

Thanks @Sg235 I think I was getting caught up between the gain and basis calcs. This is really confusing to me for some reason. Taking REG tomorrow and have been writing my notes down to make sure I don't forget it.

FAR - 78*
AUD - 66, 79
REG - 73, 76
BEC - 79

[Author]

Replies