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3 November, 19:16

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.

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  1. 3 November, 19:44
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    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
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