Gearty and Olinto organized The Worthington Corp., which issued voting common stock with a fair market value of $240,000. They each transferred property in exchange for stock as follows: Property Adjusted Fair Market Percentage of The Worthington
Basis Value Corp. Stock Acquired
Gearty Building $80,000 $164,000 60%
Olinto Land 10,000 96,000 40%
The building was subject to a $20,000 mortgage that was assumed by The Worthington Corp. What was The Worthington Corp.'s basis in the building?

$80,000.

Explanation:

From the given question:

Gearty and Olinto organized The Worthington Corp., which issued voting common stock with a fair market value of $240,000.

They each transferred property in exchange for stock as follows:

                  Property        Adjusted       Fair Market       Percentage of The                

                                          Basis             Value               Worthington   Corp.

                                                                                         Stock Acquired

Gearty         Building          $80,000       $164,000        60%

Olinto          Land                10,000         96,000                  40%

The building was subject to a $20,000 mortgage that was assumed by The Worthington Corp.

What was The Worthington Corp.'s basis in the building?

From the above given information;

Gearty and Olinto usually issued voting common stock which will be later exchange for property.

Now;

Under section 351 ; the issuance of common stock in exchange for property that is less than 80% of all the contributors is a taxable transaction.

Thus; as Gearty and Olinto who organized The Worthington Corp. altogether have more than 80% control (i.e 100%), this is a non taxable transaction and the basis of the corporation is the carryover basis.

Therefore;

Worthington Corp.'s basis in the building = Carryover basis = $80,000.

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