Rachelle transfers property with a tax basis of $1,125 and a fair market value of $1,350 to a corporation in exchange for stock with a fair market value of $1,040 and $146 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $164 on the property transferred. What is the corporation's tax basis in the property received in the exchange

$1,271

Explanation:

The tax basis of the Corporation in respect to the property received is the tax basis of the property in addition to the lesser of the gain received from the property and boot received.

Tax basis of property = $1,125

Gain received = Fair market value of property - fair market value of stock

= 1,350 - 1,040

= $310

Boot received = $146

Boot is lesser amount.

Tax basis = 1,125 + 146

= $1,271

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