Pursuant to a complete liquidation, Carrot Corporation distributes to its shareholders real estate held as an investment (basis of $1,325,200, fair market value of $1,722,760).

Determine the gain or loss recognized by Carrot on the distribution if the real estate is subject to a liability of $690,000. If the real estate is subject to a liability of $690,000, Carrot has a recognized gain of $ 190,000.

Carrot's gain = $397,560

Explanation:

given data

basis = $1,325,200

fair market value = $1,722,760

solution

we know according to the Section 336

it provides that if the property is subject to any liability then the fair market value can not less than the liability.

But here in our case the liability is less FMV.

so that Carrot's gain is same as ($1,722,760 - $1,325,200) = $397,560 on the distribution

so Carrot's gain = $397,560