Question

Last year, a shareholder transferred land (basis of $650,000, fair market value of $575,000) to Roadrunner...

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?

Homework Answers

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

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