Got this question on Ninja MCQ, and it says when property is contributed to a corporation the corporations basis in the property is FMV which can not be right.
Porter, the sole shareholder of Preston Corp., transferred property to the corporation as a contribution to capital. Two years later, Corley transferred property to the corporation in exchange for a 10% interest in corporate stock. The property transferred was valued as follows:
Porter’s Transfer Corley’s Transfer
Basis $50,000 $250,000
Fair market value 200,000 500,000
What amount represents the corporation's basis in the property received?
A.
$700,000
B.
$550,000
C.
$450,000
Incorrect D.
$300,000
Exp.
When property is transferred to a corporation, the basis of any property received is the FMV at the time of the transfer. Porter's transfer two years ago had a FMV of $50,000, but the current FMV does not have an impact on the corporation's basis in the property. The basis in Corley's contribution is the current FMV, and their basis in the property does not affect the corporation's basis. The total basis in property contributed to the corporation is the $50,000 original contribution (FMV) from Porter, plus the $500,000 current contribution (FMV) for Corley, which equals a total of $550,000.
Can someone please explain this to me?
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