Where Form 1120 C Transactions 2023-2024

In this video, we're going to talk about how to calculate the basis of assets received by the corporation in a section 351 transaction. So, if you remember, a section 351 transaction is where the transferors are transferring property to a corporation in exchange for the corporation's stock. It defers recognition of any built-in gains or losses on the property. What we want to know is, when the corporation receives this property, what is the corporation's basis in the property? Basically, it's going to be a carryover basis of the basis of the transfers, but then there will be a couple of adjustments. Let's get into an example to make it easier to understand. Let's say you own a ferris wheel, and the cost/adjusted basis of the ferris wheel is $100,000. The fair market value is $975,000. Your friend, Bozo the Clown, owns all twenty shares of a corporation called Seven Flags Amusement Park. You're going to transfer this ferris wheel that you own to the corporation in exchange for 80 shares of stock in the corporation. Additionally, you're going to receive $2,000 cash and $1,000 worth of clown shoes. This is called boot, and it triggers a $3,000 gain. Now, what we want to know is, what is going to be the basis in the ferris wheel for Seven Flags Amusement Park? If Seven Flags were to sell the ferris wheel tomorrow, we need to know its adjusted basis. Here's what we do: we start with your basis in the ferris wheel, which is $100,000. Then we make the adjustment for the recognized gain, which is $3,000. Because we do not have any reductions for lost property in this case, our basis is $103,000. Now, let's say Six months later, Seven Flags sells the ferris wheel for $503,000. To calculate the...