Ashley Transfers Property with a Tax Basis of $5,000 and a Fair

question 1

Multiple Choice

Ashley transfers property with a tax basis of $5,000 and a fair market value of $3,000 to a corporation in exchange for stock with a fair market value of $2,000 and $500 in cash in a transaction that qualifies for deferral under section 351. The corporation assumed a liability of $500 on the property transferred. What is Ashley's tax basis in the stock received in the exchange?

• A)$5,000
• B)$4,000
• C)$3,000
• D)$2,000

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Definitions:

Pre-Tax Book Income

Earnings of a business before taxes are deducted, as reported in its financial books.

Tax Depreciation

The allocation of an asset's cost over its useful life for the purposes of tax deductions, according to IRS rules and schedules.

Book Depreciation

The method of calculating the depreciation of an asset for record-keeping and tax purposes.

Tax Rate

The rate at which a person or company's earnings are taxed.