Question

Ester transfers land (basis of $200,000 and fair market value of $355,000) to a controlled corporation in return for stock in the corporation. However, shortly before the transfer, Ester mortgages the land and uses the $25,000 proceeds to meet personal obligations. Along with the land, the mortgage is transferred to the corporation. Ester has a realized gain on the transfer of_____and a recognized gain of_____.

Answer 1

Answer:

Ester will have a realized gain on the transfer of $155,000 and a recognized gain of $25,000

Explanation:

Calculation to determine realized gain on the transfer and recognized gain

Amount realized=($300,000+$25,000)-$200,000

Amount realized=$355,000-$200,000

Amount realized=$155,000

Based on the information given her recognized gain will be $25,000