Celeste transferred 100 percent of her stock in Supply Chain Company to Marketing Corporation in a Type A merger. In exchange, she received stock in Marketing with a fair market value of $513,500 plus $513,500 in cash. Celeste's tax basis in the Supply Chain stock was $1,340,000. What amount of loss does Celeste recognize in the exchange and what is her basis in the Marketing stock she receives

Marketing Stock Basis of $826,500

Explanation:

a) She will recognize no loss as the exchange is TAX DEFERRED.

b) The Stock Basis is calculated with the following formula,

Stock basis = Carryover Basis - Cash received

Plugging in the figures therefore we will have,

Stock Basis = $1,340,000 -$513,500

= $826,500.

If Celeste had sold stocks at $513,500, she would have suffered a loss of $313,000 (826,500 - 513,500).

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