Question

Red Blossom Corporation transferred its 40 percent interest to Tea Company as part of a complete liquidation of the company. In the exchange, Red Blossom received land with a fair market value of $520,000. The corporation's basis in the Tea Company stock was $417,500. The land had a basis to Tea Company of $622,500. What amount of gain does Red Blossom recognize in the exchange and what is its basis in the land it receives

Answer 1

Answer: $102,500 gain recognized and a basis in the land of $520000

Explanation:

From the information given in the question, we can infer that the amount of gain that Red Blossom recognize in the exchange will be:

= Fair market value of land - Corporation's basis in the Tea Company stock

= $520,000 - $417,500

= $102500

We should also note that the land basis will be $520000 which is the fair market value of the land.