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vasaline
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| Posted: 22 Aug 2011 at 18:57 | IP Logged
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I got this question from becker and have
trouble understanding it.
Carey transferred the following under section
351:
FMV = 40000 Basis = 20000 Liability = 20000
and contributed cash 20000.
What is realized gain? Solution shows 20000
but I don't understand how it is that.
Please help! Exam in couple days!
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pavi24
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| Posted: 23 Aug 2011 at 03:51 | IP Logged
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hi,
Realized gain = FMV - NBV . S0 we take into account only $40K- $20K = $20K.
If there is realized gain and boot , we take into account Recognized gain only to extent of boot... here there does not seem to be gain, as cash is contributed.
Hope this helps
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vasaline
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| Posted: 23 Aug 2011 at 16:07 | IP Logged
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But wouldn't u add the 20000 liability
assumed by Corp part of amount realized
and also the cash contributed deducted from
amount realized since it's boot paid?
I just thought it's everything u received
subtracted by what's given up. Kind of like
like kind exchanges.
Thanks!
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vasaline
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| Posted: 23 Aug 2011 at 16:17 | IP Logged
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Here is another example that causes some
confusion on realized gain.
FMV prop=120000. Basis = 100000. Liabilty
= 60000. Cash to SH = 10000.
The answer is 120000 - 10000 = 20000.
But I thought it is (120000+10000+60000) -
100000 = 90000.
Please explain test is coming up soon!
Thanks!
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pavi24
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| Posted: 23 Aug 2011 at 23:37 | IP Logged
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1.Realized gain : This is simply the difference between property FMV and Adjusted basis.Cash is not involved in calculation
2.Recognized gain : This is where the cash or boot is involved. The gain will be limited to amount of Boot received. In your 2nd example as well you are looking at realized gain which is 120K - 100K = $20K. But if your question is related to Recognized gain, then the answer would be restricted to boot received, which is $10K.
3.Also if this is corporation, so refer to Pg R3-5 in becker. The cash is accounted separately and cash disbursement just triggers a gain calculation, but I dont think it forms a part of the gain recognized.
Dont take like kind exchange rules in conjunction with Corporation rules
I hope this helps....
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Topic: Section 351 question
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