What is Property distributions by corporations?
In short
When a corporation distributes appreciated property to shareholders, it recognizes gain as if it had sold the property at fair market value. It recognizes no loss on property that has declined in value.
Key takeaways
- The shareholder has a dividend equal to the property's fair market value, to the extent of earnings and profits.
- The shareholder's basis in the property is its fair market value.
- Liabilities the shareholder takes on reduce the amount distributed.
Example
Land with a basis of $40,000 and a value of $100,000 is distributed: the corporation recognizes a $60,000 gain and the shareholder has a $100,000 distribution.
Where it's tested
REG: C Corporation Taxation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A C corporation distributes land with a fair value of $50,000 and a basis of $20,000 to a shareholder. The corporation has ample earnings and profits. What does the corporation recognize?