Katarina transferred her 10 percent interest to Spartan Company as part of a complete liquidation of the company. In the exchange, she received land with a fair market value of $200,000. Katarina's basis in the Spartan stock was $100,000. The land had a basis to Spartan Company of $50,000. What amount of gain does Spartan recognize in the exchange and what is Katarina's basis in the land she receives

Question

Blayne

Business

11 April, 15:02

Katarina transferred her 10 percent interest to Spartan Company as part of a complete liquidation of the company. In the exchange, she received land with a fair market value of $200,000. Katarina's basis in the Spartan stock was $100,000. The land had a basis to Spartan Company of $50,000. What amount of gain does Spartan recognize in the exchange and what is Katarina's basis in the land she receives

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Answers (1)

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Amari Mendoza · Answer 1

Katarina recognizes a basis of $200,000 while Spartan should record a gain of $150,000

Explanation:

Firstly, Spartan has effectively sold the land whose market value was $200,000 and initial basis of $50,000, hence the difference between the market value on the date of transfer and actual basis of $150,000 ($200,000-$50,000) is the gain to be recognized.

However, the Katarina has taken possession of the land whose current value is $200,000, hence the basis to Katarina should reflect the actual market value of $200,000