[12] On January 1, Year 3, Susan transferred land she had originally acquired on

Question

[12] On January 1, Year 3, Susan transferred land she had originally acquired on June 21, Year 1, to Corporation K in a nontaxable exchange for K’s stock. The land had a FMV of $25,000 and an adjusted basis of $12,000. On September 1, Year 3, Corporation K sold the property that it held for investment purposes for $27,000. The amount and character of the gain recognized by Corporation K is

A. $2,000 long-term capital gain.

B. $15,000 short-term capital gain.

C. $15,000 long-term capital gain.

D. $2,000 short-term capital gain.

Explanation / Answer

As the land was held by Corporation K for less than 3 years period , the gain from sale transaction will be treated as short term. Fair market value of land on the date of transfer by Susan i.e.on Jan.1 of Year 3 will be treated as cost of land by Corporation K. Short term capital gain from sale transation will be = Sale value - cost = $27000 - $25000 = $2000 The answer is Option D.

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