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25 May, 12:00

Carl transfers land with a fair market value of $120,000 and basis of $30,000, to a new corporation in exchange for 85 percent of the corporation's stock. The land is subject to a $45,000 liability, which the corporation assumes. What amount of gain must Carl recognize as a result of this transaction?

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  1. 25 May, 14:32
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    Answer: $15,000

    Explanation:

    From the question, Carl transfers land with a fair market value of $120,000 and basis of $30,000, to a new corporation in exchange for 85 percent of the corporation's stock and that the land is subject to a $45,000 liability, which the corporation assumes.

    The amount of gain that Carl must recognize as a result of this transaction will be the difference between the liability the land is subjected to which is $45,000 and the basis of the land which is $30,000.

    = $45,000 - $30,000

    = $15,000
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