Question

In the current year, Dove Corporation (E & P of $1 million) distributes all of its property in a complete liquidation. Alexandra, a shareholder, receives land having a fair market value of $200,000. Dove Corporation had purchased the land as an investment three years ago for $125,000, and the land was distributed subject to a $100,000 liability. Alexandra took the land subject to the $100,000 liability. What is Alexandra’s basis in the land?

Answer 1

$200,000

Step-by-step explanation:

The rule is that when property is received in a complete liquidation, the basis of the receiver in the property is the fair market value of the property on the date the property is distributed.

From the question, since the fair market value of the land received by Alexandra on the date of its distribution is $200,000, Alexandra's basis in the land is therefore that $200,000 fair market value regardless of the fact that the land was distributed subject to a $100,000 liability.

Answer 2

Alexandra took the land subject to the $100,000 liability. Therefore the Alexandra’s basis in the land is $200,000.

Step-by-step explanation:

in the current scenario "Dove Corporation distributes all of its property in a complete liquidation. Alexandra, a shareholder, receives land having a fair market value of $200,000". Thus, the Basis of property received in a complete liquidation is the property's fair market value on the date of distribution, or %200,000