During 2015, CDE Corporation (an S corporation since its inception in 2013) dist

Question

During 2015, CDE Corporation (an S corporation since its inception in 2013) distributed a parcel of land to its sole shareholder Clark. The fair market value of the land at the time of the distribution was $80,000 and CDE's tax basis in the property was $30,000. Before considering the effects of the distribution, Clark's basis in his CDE stock was $10,000. What amount of gain, if any, does CDE recognize on the distribution? What amount of income, if any, does Clark recognize on the distribution and what is Clark's basis in his CDE stock after accounting for the distribution?

Explanation / Answer

CDE Recognise ( $80,000 fair market value - $30,000 basis) that is $50,000 gain on the distributions , taxable to Clark. He must also recognise $20,000 long term capital gain on the same. It is becaures his $80,000 distribiton is more than his basis in the stock by $20,000 ( $10,000 beginning stock bais + $50,000 taxable income allocated from CDE - $80,000 distribution) .This excess distribution is treated as long term capital gain because Clark has held his CDE stock for more than a year. After accounting for the distribution Clark's stock basis in his CDE stock in $0

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