Question

Red Blossom Corporation transferred its 40 percent interest to Tea Company as part of a complete liquidation of the company. In the exchange, Red Blossom received land with a fair market value of $635,000. The corporation's basis in the Tea Company stock was $312,500. The land had a basis to Tea Company of $802,500. What amount of gain does Red Blossom recognize in the exchange and what is its basis in the land it receives?

Answer 1

The amount of gain that Red Blossom recognize in the exchange is $322500 and its basis in the land it receives is $635000.

Step-by-step explanation:

Red Blossom recognize the gain

= Fair market value of land – corporation basis

= $635000 - $312500

= $322500

Basis of Land = Fair market value

= $635000

$322500 gain recognized and a basis in the land of $635000

Therefore, The amount of gain that Red Blossom recognize in the exchange is $322500 and its basis in the land it receives is $635000.