Phillip incorporates his sole proprietorship transferring it

Phillip incorporates his sole proprietorship, transferring it to newly formed black corporation. The assets transferred have an adjusted basis of $240000 and fair market value of $400000. Also transferred was $100000 in liabilities, $10000 of which was personal, the balance of $90000 being business related. In return for these transfers, Phillip receives all of the stock in Black corporation. Which of the following statements is correct?

a. Black Corporation will have a basis of $250000 in the property.

b. Black Corporation will have a basis of $240000 in the property.

c. Phillip’s basis in the Black Corporation stock will be $241000

d. Phillip’s will have a recognized gain of $10000

e. Phillip’s will have a recognized gain of $100000

Solution

The answer will be b. Black Corporation will have a basis of $240000 in the property.

As his personal liabilities won\'t be carried to corporation and it will be adjusted through his proprietorship assets