Valuation of Property and Stock in an Exchange

When you transfer property into a corporation, there are two valuation issues:

  1. The value assigned to the stock you receive from the corporation
  2. The value assigned to the property being transferred to the corporation

The value assigned to the stock you receive from the corporation:

The basis in the stock you receive (also called-the exchanged basis, carryover basis or transferred basis) is the same as the adjusted basis in the property you transfer.

Example:

  • If the adjusted basis in the property you transfer is $10,000.
  • Your stock basis is also $10,000.

The value to assign to the property being transferred to the corporation:

The corporation's basis in the property it receives in an exchange for its stock is the same basis you had in the property when transferred (in other words, the corporation takes your basis).

Example:

  • If your adjusted basis in the property transferred is $10,000.
  • The corporation's basis in the property is also $10,000.

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