Blue Corporation distributes land and building having a $70,000 adjusted basis and a $200,000 FMV to its sole shareholder, Marina. Blue has current and accumulated E & P exceeding $100,000. The property is subject to a $120,000 mortgage, which Marina assumes. What is the amount of the taxable dividend received by Marina?

Question

Quizplus · Accepted Answer

The FMV of the property is $200,000, but there is a mortgage of $120,000 that Marina is assuming. Therefore, the net value of the property received by Marina is $80,000 ($200,000 - $120,000). Since the property has a $70,000 adjusted basis, the taxable dividend received by Marina is $10,000 ($80,000 - $70,000). Marina has current and accumulated E&P exceeding $100,000, so there are no issues with the corporation's ability to pay a dividend.

Blue Corporation Distributes Land and Building Having a $70,000 Adjusted