Question

Inc. (WFI). After liquidating its remaining inventory and paying off its remaining liabilities, WFI had the following tax accounting balance sheet: FMV Adjusted Basis Appreciation Cash $ 200,000 $ 200,000 Building 50,000 10,000 40,000 Land 150,000 90,000 60,000 Total $ 400,000 $ 300,000 $ 100,000 Under the terms of the agreement, Shauna will receive the $200,000 cash in exchange for her 50 percent interest in WFI. Shauna's tax basis in her WFI stock is $50,000. Danielle will receive the building and land in exchange for her 50 percent interest in WFI. Danielle's tax basis in her WFI stock is $100,000. Assume for purposes of this problem that the cash available to distribute to the shareholders has been reduced by any tax paid by the corporation on gain recognized as a result of the liquidation.(Negative amounts should be indicated by a minus sign.) What amount of gain or loss does Shauna recognize in the complete liquidation?

Answer 1

On the transfer of the building,

Appreciation of building = FMV - Adjusted Basis

= $50,000 - $10,000

= $40,000

WFI has taxable transaction and gain recognition of $40,000.

On the transfer of the land,

Appreciation of land = FMV - Adjusted Basis

= $150,000 - $90,000

= $60,000

WFI has taxable transaction and gain recognition of $60,000.