Texas Corporation is undergoing a complete liquidation and distributes land to Robert, one of its shareholders, in exchange for all of Robert's stock. The land has a basis of $300,000 and an FMV of $400,000 on Texas Corporation's books and is subject to a $325,000 liability. Robert assumes the liability on the property. Robert's basis in his Texas Corporation stock is $100,000. What is the amount of gain or loss recognized by Robert on the distribution?
A)$175,000 gain
B)$25,000 gain
C)$25,000 loss
D)No gain or loss is recognized.

Question

Quizplus · Accepted Answer

When Robert receives the land, his basis is equal to the fair market value of the land minus the amount of the liability he assumed. This is $400,000 - $325,000 = $75,000. Since Robert's basis in his stock is $100,000, he will recognize a loss of $25,000 ($100,000 - $75,000) on the distribution.

Texas Corporation Is Undergoing a Complete Liquidation and Distributes Land