Zhang incorporated her sole proprietorship by transferring inventory, a building, and land to the corporation in return for 100 percent of the corporation's stock. The property transferred to the corporation had the following fair market values and tax-adjusted bases:
FMV Tax-Adjusted Basis
Inventory $ 20,000 $ 10,000
Building 150,000 100,000
Land 230,000 300,000
Total $400,000 $410,000
The corporation also assumed a mortgage of $100,000 attached to the building and land. The fair market value of the corporation's stock received in the exchange was $300,000. The transaction met the requirements to be tax-deferred under §351.
a. What amount of gain or loss does Zhang realize on the transfer of the property to her corporation?
b. What amount of gain or loss does Zhang recognize on the transfer of the property to her corporation?
c. What is Zhang's tax basis in the stock she receives in the exchange?
d. What is the corporation's tax-adjusted basis in each of the assets received in the exchange?
Assume the corporation assumed a mortgage of $500,000 attached to the building and land.
e. How much, if any, gain or loss does Zhang recognize on the exchange assuming the revised facts?
f. What is Zhang's tax basis in the stock she receives in the exchange?
g. What is the corporation's tax-adjusted basis in each of the assets received in the exchange?