On January 27, 2017 Andy and Barb form the AB Corporation by a transfer of the following:

Andy: Cash $200,000

Equipment FMV $300,000 Basis $100,000

Barb: Land and Building FMV $500,000 Basis $400,000

Both Andy and Barb receive stock in AB Corporation valued at $500,000.

Complete the following schedule

Andy _ Barb

Amount Realized __________________ ___________________

Realized Gain __________________ ___________________

Recognized Gain __________________ ___________________

Basis in Stock Received __________________ ___________________

What basis will the corporation take in:

The equipment ___________________________

The land/building ___________________________

The equipment is 7-year depreciable property. AB Corporation will depreciate this property (circle the appropriate answer)

As new recovery property placed in service on January 27, 2017

By taking over the depreciable life and method used by Andy

Because the corporation is not the original user, the equipment will not be depreciable in the hands of the corporation

VARIATION

Assume the same facts as in the original example, with one variation. Barbs land and building is contributed subject to a $200,000 liability. AB Corporation assumes this liability. The stock issued to Barb is reduced in value by $200,000 to reflect the liability assumption. Therefore Andy receives stock valued at $500,000 and Barb receives stock valued at $300,000. Complete the following schedule based on this one change:

Amount Realized Barb ________________________

Realized Gain Barb ________________________

Recognized Gain Barb ________________________

Basis of Stock Received Barb ________________________