Transfer of Assets to Zeta Corporation: Analyzing Gains and Losses
How can we calculate the gains and losses for each transfer of assets to Zeta Corporation?
Let's break down the scenarios involving Anna, Brian, and Candice transferring assets to Zeta Corporation and determine their realized and recognized gains or losses.
Analysis of Asset Transfers to Zeta Corporation
In the scenario provided, Anna, Brian, and Candice form Zeta Corporation and transfer assets to the company in exchange for Zeta stock. Let's analyze each transfer and calculate the realized and recognized gain or loss, the transferor's adjusted basis in their Zeta stock, and Zeta Corporation's adjusted basis in the assets received.
For Anna's transfer of machinery with a basis of $40,000 and a FMV of $65,000 for Zeta stock worth $65,000, her realized gain is $25,000 ($65,000 - $40,000). Her recognized gain is also $25,000. Anna's adjusted basis in Zeta stock will be $65,000, the FMV of the stock. Zeta Corporation's adjusted basis in the machinery will also be $65,000.
When Brian transfers land with a basis of $40,000 and subject to two mortgages, Zeta Corporation issues him stock with a FMV of $65,000 and assumes the debt. Brian's realized gain or loss is determined by comparing the FMV of the stock received ($65,000) with his basis in the land ($40,000). However, since Brian is using the proceeds from the second mortgage for a down payment on a home, he will not recognize any gain or loss. His adjusted basis in Zeta stock will be $65,000, and Zeta Corporation's adjusted basis in the land will also be $65,000.
Lastly, Candice transfers office equipment with an adjusted basis of $3,000 and subject to a secured debt of $5,000 for Zeta stock with a FMV of $13,000. The debt was incurred to finance the acquisition of the equipment, and Zeta Corporation assumed the debt. Candice's realized gain or loss is determined by comparing the FMV of the stock received ($13,000) with her adjusted basis in the equipment ($3,000). She has a realized gain of $10,000 ($13,000 - $3,000). However, since the debt is assumed by Zeta Corporation, Candice will not recognize any gain or loss. Her adjusted basis in Zeta stock will be $13,000, and Zeta Corporation's adjusted basis in the office equipment will also be $13,000.