In corporaration formation, why the in IRC 351,shareholder's basis in transfered property = carryover basis -FMV of boot received + gain recognized? please correct me if any errors
Under IRC Section 351, when you transfer property to a corporation in exchange for its stock, you generally do not recognize any gain or loss. This is often referred to as a tax-free incorporation. The basis of the stock you receive (your shareholder's basis) is generally the same as the basis of the property you transferred to the corporation (carryover basis). However, if you also receive money or other property (known as "boot") in addition to the corporation's stock, you must recognize gain to the extent of the lesser of the fair market value (FMV) of the boot or the realized gain on the transaction. So, the formula you provided is slightly incorrect. The correct formula should be: Shareholder's basis in transferred property = carryover basis + gain recognized - FMV of boot received. This formula ensures that the basis of the transferred property reflects any gain recognized on the transaction, but is reduced by the value of any boot received, which is treated as a return of capital.
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