A taxpayer contributes property with a basis of $100,000 and FMV of $150,000 to a C Corporation for 100% of the stock. The corporation assumes a liability of $120,000 on the property. What is the taxpayer's recognized gain?

Answer options:

$20,000

$50,000

$30,000

How to approach this question

Check for §357(c) Liability in Excess of Basis. Gain = Liability Assumed - Adjusted Basis of Assets Transferred.

Full Answer

B.$20,000✓ Correct

IRC §357(c). If the sum of liabilities assumed exceeds the total adjusted basis of property transferred, the excess is recognized gain. $120,000 - $100,000 = $20,000.

Common mistakes

Ignoring the liability excess; recognizing the full realized gain ($50k).

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