Please help me.
Lind and Post organized Ace Corp., which issued voting common stock with a fair market value of $120,000. They each transferred property in exchange for stock as follows:
Lind: Building – Adjusted basis: $40,000 FMV: $82,000 Percent Acquired: 60%
Post: Land – Adjusted basis: $5,000, FMV: $48,000, Percent Acquired: 40%
The building was subject to a $10,000 mortgage that was assumed by Ace. What was Ace's basis in the building?
a. $82,000
b. $30,000
c. $72,000
d. $40,000
Explanation
Choice “d” is correct. Ace's basis in the building is the same as Lind's basis immediately prior to its contribution to the corporation.
Choice “b” is incorrect. Ace's basis in the building is computed separately from any debt that it assumes related to the building.
Choice “c” is incorrect. Ace uses Lind's basis, not the building's fair market value, as its basis. Furthermore, the debt assumed by Ace does not affect the basis of the building to Ace.
Choice “a” is incorrect. Ace uses Lind's basis, not the building's fair market value, as its basis.
I am confused why the answer would not be $30,000. Shouldn't adjusted basis be reduced by the amt of debt the corporation receives on the property? Unless we're assuming that the $10,000 mortgage that the question mentions was already calculated in. The explanation for why B is wrong seems to contradict what I am directly reading in the Becker book. “The adjusted basis of property is reduced by any debt on the property” Can anyone offer some clarification?
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