Azar, who owns 100% of Hat Corporation, transfers land having a $50,000 FMV and a $30,000 adjusted basis to Hat. In return, Azar receives additional shares of Hat common stock having a $40,000 FMV and Cap Corporation common stock having a $10,000 FMV. The Cap Corporation common stock, a capital asset, has a $2,500 basis on Hat's books. What is Azar's realized and recognized gain? Does Hat
Corporation recognize a gain on the stock transfer to Azar?
What will be an ideal response?
Azar realizes a $20,000 ($40,000 + $10,000 - $30,000) gain on the land transfer, of which $10,000 must be recognized. Hat Corporation recognizes a $7,500 capital gain ($10,000 - $2,500) when transferring the Cap Corporation stock to Azar.
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What will be an ideal response?
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