Tyler operates a dry cleaning business as a sole proprietorship. The business operates in a building that Tyler owns. Last year, he borrowed $150,000 by placing a mortgage on the building. He used the money for a downpayment on his personal residence and college expenses for his two children. He now wants to incorporate his business and transfer the building and the mortgage to the new corporation along with other assets and some accounts payable. The amount of the unpaid mortgage balance will not exceed Tylers adjusted basis for the building at the time he transfers it to the corporation.

Required: Explain to Tyler the tax consequences of this proposed corporate formation. You do not need to address the tax consequences to the Corporation.