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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 $555,000. The corporation's basis in the Tea Company stock was $422,500. The land had a basis to Tea Company of $815,000. What amount of gain does Red Blossom recognize in the exchange and what is its basis in the land it receives

Respuesta :

Cricetus

Answer:

$132,500 gain recognized and a basis in the land of $555,500.

Explanation:

The given values are:

Fair market value,

= $555,000

Corporation's basis in the company stock,

= $422,500

Land basis,

= $815,000

Now,

The recognized gain will be:

= [tex]Fair \ market \ value-Corporation's \ basis[/tex]

On substituting the given values, we get

= [tex]555,000-422,500[/tex]

= [tex]132,500[/tex] ($)

Basis in land will be equal to fair market value i.e., $555,000.

Thus the above is the correct solution.

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