Magenta Corporation acquired land in a § 351 exchange one year ago. The land had a basis of $320,000 and a fair market value of $350,000 on the date of the transfer. Magenta Corporation has two shareholders, Mark (70%) and Megan (30%), who are brother and sister. Magenta Corporation adopts a plan of liquidation in the current year. On this date, the land has decreased in value to $250,000. Magenta Corporation sells the land for $250,000 and distributes the proceeds pro rata to Mark and Megan. What amount of loss may Magenta Corporation recognize on the sale of the land?
A) $0
B) $21,000
C) $30,000
D) $70,000
E) None of these

Question

Quizplus · Accepted Answer

Magenta Corporation can recognize a loss of $70,000 on the sale of the land, which is the difference between the land's basis of $320,000 and the sale price of $250,000. Losses are recognized on the sale of assets based on the difference between the asset's adjusted basis and the amount realized from the sale.

Magenta Corporation Acquired Land in a § 351 Exchange One