Allison forms a corporation to hold an apartment building. The building has a basis of $200,000, a value of $1,200,000. Shortly before transferring the building to a corporation in exchange for 100% of its stock, Allison takes out a mortgage of $500,000 and the corporation assumes the debt on the incorporation. What is the amount of gain to be recognized by Allison?

1. 0.
2. $1,000,000.
3. $300,000.
4. $500,000.