Compute Martin basis in Property

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Problem - On January 4, 2019, Martin Corporation acquires two properties from a shareholder solely in exchange for stock in a transaction that qualifies under § 351. The shareholder's basis, the fair market value, and the built-in gain (loss) of each property are:

 

Shareholder's Basis

Fair Market Value

Built-In Gain (Loss)

Property 1

$300,000

$375,000

$75,000

Property 2

525,000

400,000

(125,000)

Net built-in basis

 

 

$(50,000)

Martin adopts a plan of liquidation later in the year and distributes Property 2 to a 30% shareholder when the property is worth $350,000.

Required -

a. Compute Martin's basis in Property 1 and in Property 2 as of January 4, 2019.

b. Compute Martin's realized and recognized loss on the liquidating distribution of Property 2.

Reference no: EM132662557

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