Yellow Corporation transfers land (basis of $210,000,fair market value of $300,000)to Joe,a shareholder,to carry out a qualifying stock redemption.The land is distributed subject to a $320,000 liability.With respect to the redemption:

Question

Quizplus · Accepted Answer

The amount realized by Yellow Corporation is the fair market value of the land, which is $300,000, minus the liability of $320,000, resulting in a loss of $20,000. However, because the land is distributed to a shareholder as a part of a qualifying stock redemption, this loss is treated as a capital loss to the shareholder. Yellow Corporation's basis in the redeemed stock is reduced by the amount of the loss ($20,000), and the shareholder's basis in the land received in the redemption is $300,000 (fair market value of land received). Therefore, Yellow Corporation will recognize a gain of $110,000 ($300,000 - $210,000 adjusted basis of the land), which is treated as long-term capital gain.

Yellow Corporation Transfers Land (Basis of $210,000,fair Market Value of $300,000)to