Green Co.transferred a small piece of land to one of its shareholders as a dividend in kind.The land originally cost $50,000 and had a fair market value of $175,000 at the time of the transfer.The corporation will realize ________,and the shareholder will realize ________.

Question

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The corporation will realize a capital gain of ($175,000 - $50,000) = $125,000 on the transfer of the land as it is being transferred at its fair market value. The shareholder will realize a dividend of $175,000, which is the fair market value of the land received as a dividend in kind. The dividend is taxable as ordinary income to the shareholder. The shareholder will also realize a capital gain of ($175,000 - $0) = $175,000 if they later sell the land.

Green CoTransferred a Small Piece of Land to One of Its