Donald conducts a trade or business as a sole proprietorship with the following assets: (i) A building
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Question:
Donald conducts a trade or business as a sole proprietorship with the following assets:
(i) A building constituting Section 1231 property with FMV of $750,000 and A/B of $200,000;
(ii) Inventory held for sale to customers in the ordinary course of Donald’s trade or business with FMV of $250,000 and A/B of $150,000. Donald contributes the building and the inventory to a corporation (“Newco”) in exchange for 100% of Newco’s stock.
- How much gain (if any) is recognized by Donald upon the exchange? As part of your answer, please indicate the character of any such gain.
- What is Donald’s A/B in the Newco shares received in this transaction (measured immediately after the exchange)?
What is Donald’s holding period in the Newco shares received in this transaction (determined immediately after the exchange)?
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