Question

For the built-in loss limitation to apply, the property must have been acquired by the corporation as part of a plan whose principal purpose was to recognize a loss on the property by the liquidating corporation. Explain.

Answer 1

Answer:

Yes, it is true that for the built-in loss limitation to apply, the property must have been acquired by the corporation as part of a plan whose principal purpose was to recognize a loss on the property by the liquidating corporation. That is why A net built in loss has to be determined first.

Explanation:

Limitation is equal to the value of the stock of the loss borne by corporation immediately before the ownership changes.

The basis limitation rule only applies when there is a net built-in loss.

Built-in losses are the excess of the adjusted basis for U.S. federal income tax of any Contributed Property over its Agreed Value as of the time of contribution treated as deductions or losses in the year recognized.

A net built-in loss occurs when the aggregate adjusted basis of the property exceeds its fair market value.