Question

Last year, a shareholder transferred land (basis of $650,000, fair market value of $575,000) to Roadrunner Corporation in a § 351 transaction. This was the only property transferred to Roadrunner at that time. During the current year, Roadrunner Corporation adopted a plan of liquidation and distributed the land to Rhonda, a 15% shareholder. On the date of the distribution, the land had a fair market value of $400,000. Roadrunner Corporation never used the land for business purposes during the time it owned the property. What amount of loss may Roadrunner recognize on the distribution of the land?

Answer 1

As per Step down rule, Built in loss limitation applicable only on extent of Preperty 's basis exceed fair market value after application of Step down rule.
Under § 351 transaction Roadrunner corporation Would gave basis in land of 575000
Transferor shareholder’s basis	650000
Less: loss of property transferred (650000-575000)	75000
Roadrunner corporation Would gave basis in land	575000
Company would Recognized loss 175000
Basis of land	575000
Less: fair value at date of distribution	400000
Company would Recognized loss	175000
175000 decline in the value of the land occurred after the date of the § 351 transfer