19. XYZ, Corp. owned 85% of ABC Corporation. XYZ Corp. received a liquidating di

Question

19.            XYZ, Corp. owned 85% of ABC Corporation. XYZ Corp. received a liquidating distribution from ABC Corporation as part of the complete liquidation of ABC Corporation. XYZ Corp.

XYZ, Corp. owned 85% of ABC Corporation. XYZ Corp. received a liquidating distribution from ABC Corporation as part of the complete liquidation of ABC Corporation. XYZ Corp.'s basis for its ABC Corporation stock was $10,000. In exchange for its stock, XYZ Corp. received a payment of $15,000 and real property that had an adjusted basis to ABC Corporation of $10,000, a fair market value of $25,000, and that was encumbered by a $12,000 mortgage which XYZ Corp. assumed. How much gain or loss did XYZ Corp. recognize as a result of this transaction and what is XYZ Corp.'s basis in the real property?

Explanation / Answer

a. $3,000 gain recognized, and basis in real property of $40,000.

Gain:($15,000-$10,000) +($10,000-$12,000)=$3,000

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