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14 February, 19:15

Tom transfers a building that originally cost $40,000 to Paul Corp. in exchange for 100% of the corporation's stock. the adjusted basis of the building is $20,000. at the time of the transfer, the building is subject to a liability of $30,000 (which has no business purpose to it) and it worth $60,000. how much gain must Tom recognize?

a. 0

b. 10,000

c. 30,000

d. 40,000

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Answers (1)
  1. 14 February, 22:22
    0
    Gain recognized by Tom is $10000

    So option (b) will be correct answer

    Explanation:

    We have given liability on bulding assumed by Paul Corp = $30,000

    Tom's adjusted basis in the building = $20,000

    Since the liability assumed by Paul Corp on the building is greater than Tom's adjusted basis, Tom must recognize gain equal to the difference between the liability on the building and his adjusted basis.

    So gain recognized by Tom = $30,000 - $20,000 = $10,000
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