Question

Swan Corporation makes a property distribution on 12/31/13 to its sole shareholder, Matthew. The property distributed is a cottage (fair market value of $200,000; basis of $150,000) that is subject to a $35,000 mortgage that Matthew assumes. Before considering the consequences of the distribution, Swan’s current E & P is $300,000 and its accumulated E & P is 100,000. Swan makes no other distributions during the current year.

What is Swan’s taxable gain on the distribution of the cottage?

What is Swan's current E&P after the distribution on 12/31/13?

What is the taxable dividend to the shareholder (if any)?

What is the shareholder's basis in hte cottage?

Answer 1

What is Swan’s taxable gain on the distribution of the cottage?

Fair market value of property = 200000

Less: adjusted basis of property= 115000(150000-35000)

Taxable gain on distribution = 85000

What is Swan's current E&P after the distribution on 12/31/13?

Swans current E&P = 300000

Add: taxable gain on distribution = 85000

Less: distribution made = 165000(200000-35000)

After distribution E&P = 220000

What is the taxable dividend to the shareholder (if any)?

Taxable dividend to shareholders = 200000-35000 = 165000

What is the shareholder's basis in the cottage?

Shareholders basis is FMV of property i.e. 200000