Question

Terre Corporation distributed depreciable personal property having a fair market value of $9,500 to its shareholders. The property had an adjusted basis of $5,000 to the corporation. Terre had correctly deducted $3,000 in depreciation on the property. What is the amount of Terre’s total recognized gain on the distribution and how much of this gain will be considered ordinary income?

a.	None of the above.
	b.	Total Gain Recognized: $4,500; Ordinary Income: $-0-
	c.	Total Gain Recognized: $4,500; Ordinary Income: $3,000
	d.	Total Gain Recognized: $4,500; Ordinary Income: $4,500
	e.	Total Gain Recognized: $9,500; Ordinary Income : $-0-

Answer 1

Answer is option (b) - Total gain recognised $4500 and ordinary income is $ 0

Fair market value = $ 9500

Adjusted basis = $ 5000

Total gain recognised = 9500-5000 = $ 4500

Ordinary income - In a corporate setting, the term refers to any type of income generated from regular day-to-day business operations, excluding any income earned from the sale of long-term capital assets, such as land or equipment. That means ordinary income doesn't include income from property distribution.

There for ordinary income = '0'