Yolanda transfers land, a capital asset, having a $70,000 adjusted basis and a $125,000 FMV plus $10,000 cash to Jazz Corporation in exchange for all its stock. Jazz Corporation assumes the $100,000 mortgage on the land. The mortgage assumption has no tax avoidance purpose and has the requisite business purpose. What is the amount of Yolanda's realized gain or loss? How much is recognized and
what is its character? What is Yolanda's basis in the Jazz stock?
What will be an ideal response?
Yolanda has a realized gain of $55,000 ($125,000 - $70,000). Even though Yolanda does not receive any boot, she must recognize a $30,000 ($100,000 - $70,000) capital gain, the amount by which the liabilities assumed by Jazz Corporation exceed the basis of the land and the cash transferred by Yolanda. Yolanda's basis in the Jazz stock is $0.
Yolanda's basis in the land transferred $ 70,000
Plus: Cash transferred 10,000
Gain recognized 20,000
Minus: Boot received (liabilities assumed by Jazz) ($100,000)
Yolanda's basis in the Jazz Stock $ 0
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