How to calculate the shareholders gain on property contributed to a C Corporation?

Shareholders can contribute property to a C Corporation in exchange for shares in the corporation. Under certain situations, the shareholder might have to recognize a gain on the contributed property.

To understand if a gain should be recognized, the shareholder should start with the debt assumed by the corporation and subtract their net book value (adjusted basis) in the property. If the debt is greater than the NBV of the property, then the shareholder will recognize a gain.

However, there are a few exceptions to the rule that would prevent the shareholder from having to recognize a gain. Shareholders will not be required to recognize gains for contributions made to corporations if they meet the following tests:

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