What effect distribution have on John taxable income

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Question - Southwest Glen Corporation distributed a building with a FMV equal to $134,320 to its primary shareholder, John Smith. The company had purchased the building for $140,000 several years earlier and had depreciated the building $34,888 over the years. The building is subject to a mortgage of $96,666. Accumulated E&P prior to the transaction = $3,250. Assume a 21% tax rate and current E&P = zero before the transaction.

Required -

What effect does this distribution have on the John's taxable income and stock basis if John's stock basis was $5,000 prior to the transaction?

What impact does the transaction have on Southwest Glen Corp's taxable income?

Reference no: EM132628387

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