Vulture Corporation distributes land (basis of $250,000, fair market value of $475,000) to Bonita, a shareholder, to carry out a qualifying stock redemption. The land is distributed subject to a $300,000 liability. Bonita had a basis of $25,000 in the shares redeemed. With respect to the redemption:

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When a corporation distributes property to a shareholder in a stock redemption, it is treated as if the property were sold to the shareholder at its fair market value. In this case, Vulture Corporation will recognize a gain of $225,000 ($475,000 FMV - $250,000 basis). Bonita will have a basis in the land of $300,000 (the liability assumed) and will not recognize any gain on the distribution.

Vulture Corporation Distributes Land (Basis of $250,000, Fair Market Value