Sherman Sandy forms a corporation to hold an apartment building. The building has a basis of $400,000, a value of $1,200,000, and is subject to a mortgage of $750,000. Sherman has owned the property for several years and has taken depreciation of $180,000 on the building to date. If Sherman receives stock worth $450,000, he will recognize:

1. no gain.
2. $50,000 of gain, all of which is Section 1231 gain.
3. $350,000 of gain, all of which is ordinary income.
4. $350,000 of gain, $180,000 of which is Section 1250 non-recaptured gain.