A corporation distributes land and the related liability in a nonliquidating distribution to a shareholder. The land (a capital asset)has an adjusted basis of $70,000, an FMV of $100,000 and is subject to a mortgage of $120,000. The corporation must recognize
A)a $20,000 capital loss.
B)a $50,000 capital gain.
C)a $70,000 capital gain.
D)no gain or loss.

Question

Quizplus · Accepted Answer

The corporation must recognize a $50,000 capital gain, which is the difference between the fair market value (FMV) of the land ($100,000) and its adjusted basis ($70,000). The liability exceeding the FMV does not affect the calculation of gain for the corporation in this context.

A Corporation Distributes Land and the Related Liability in a Nonliquidating