Rose,an S corporation,distributes land to Walter,its only shareholder.Rose's adjusted basis for the land is $100,000,and the fair market value is $225,000.Rose has a recognized gain of $125,000 ($225,000 - $100,000)on the distribution.Walter's adjusted basis for the land is the fair market value of $225,000.

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When an S corporation distributes property to its shareholders, the shareholders' adjusted basis in the property is equal to the fair market value of the property at the time of the distribution. Therefore, in this case, Walter's adjusted basis for the land is the fair market value of $225,000. The S corporation recognizes a gain of $125,000 on the distribution.

Rose,an S Corporation,distributes Land to Walter,its Only Shareholder