Karen, in forming a new corporation, transfers land to the corporation in exchan

Question

Karen, in forming a new corporation, transfers land to the corporation in exchange for 100 percent of the stock of the corporation. Karen's basis in the land is $1,478,400, and the corporation assumes a liability on the property in the amount of $1,626,240. The stock received by Karen has a fair market value of $2,956,800. What is the amount of gain or loss that must be recognized by Karen on this transfer? What is the amount of Karen's basis in the corporation's stock? What is the amount of the corporation's basis in the land?

Explanation / Answer

(1.)   amount of gain or loss that must be recognized by Karen on this transfer

Gain / (loss) = $0 ( because Adjusted Basis for Karen is less than zero)

Note:- karen basis in land = $1478400

   less: laibility on property = ($1626240)

   Adjusted basis for karen =($147840) , adjusted basis is not less than zero, so adjusted basis of karen is limited to $0 , hence there will be no profit and loss on property even if fair maket value is greater than the Adjusted basis)

2) Karen basis of land = $0 (becasue adjusted basis of property can not be below $0)

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