William transfers real property with a fair market value of $275,000 and an adjusted basis of $125,000 to Westminster Corporation. He has owned the property for seven years. In return, he receives all 500 shares of stock in Westminster Corporation with a fair market value of $200,000, as well as a note for $75,000 payable in one year. What is the amount of gain recognized on the exchange?

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Vivian Myers

8 March, 07:38

William transfers real property with a fair market value of $275,000 and an adjusted basis of $125,000 to Westminster Corporation. He has owned the property for seven years. In return, he receives all 500 shares of stock in Westminster Corporation with a fair market value of $200,000, as well as a note for $75,000 payable in one year. What is the amount of gain recognized on the exchange?

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Bentley Glenn · Answer 1

long-term capital gain 150,000

Explanation:

It will record as follow:

note receivable 75,000 debit

Westminster Shares 200,000 debit

property 125,000 credit

long-term capital gain 150,000 credit

The gain will be the diffrence betwene the sales price and the basis of the property for William.

It is a long-term gain as the property has more than 2 years in William books.