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S corporation distributed land to sole shareholder. Land fmv $50,000, corporation basis $20,000. Explain the effect...

S corporation distributed land to sole shareholder. Land fmv $50,000, corporation basis $20,000. Explain the effect on the corporation and the shareholder

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Answer #1

When any asset distributed by S corporation to its shareholder , where the fair market value of the asset is higher than the asset's adjusted basis, then such differences in called gain.

Such gain is recognized in the same manner as if the S corporation sold it's asset to its shareholder. Such gain amount has been passes to shareholder and increases their basis in stock.

Here, [ $ 50,000 - $ 20,000] = $ 30,000 has been the calculated gain due to the distribution of asset ( land). So, $ 30,000 has been passes to shareholder and increases his basis in the stock.

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