On January 15, 2012, the Board of Directors of K Corporation voted to adopt a plan of liquidation as of February 1, 2012.On January 25, 2012, they sell land and realize a $400,000 loss.On February 15, 2012, they sell a building acquired in 2003 and depreciated under ACRS at a $200,000 gain (total depreciation recapture potential of $380,000).K distributes all of its assets to its shareholders on December 31, 2012.On K's final tax return, it will report

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When a corporation liquidates, it must recognize any gain or loss on the sale of its assets in the final tax year. In this case, K Corporation sold land for a $400,000 loss and a building for a $200,000 gain. Therefore, the final tax return will report a $400,000 loss on the sale of land and $200,000 of ordinary income on the sale of the building (100% depreciation recapture plus $80,000 capital gain). The sale of the building does not result in any additional capital gains because the corporation will distribute all of its remaining assets to its shareholders as part of the liquidation process.