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.

1. 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.
2. 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)?

Answer rating: 100% (QA)

1 Donald recognizes 200000 of gain on the exchange This gain is characterized as longterm capital ga... View the full answer