Sns soe (gain/loss) What is Susan's tax liability/benefit as a result of the redemption? Assume she has sufficient long-term capital gains from the sale of other stock. f. (liability/benefit) g. What is Susan's basis in the land? h. What is Susan's basis in her remaining Green stock?
Homework Answers
I am answering first 4 sub-questions.
a. Green's Recognized Gain on distribution = Liabilities given up + Basis of shares exchanged - FMV of the Investment
= $550,000 - $5,000* - $500,000
= $55,000
* Basis of share exchanged = (Basis of 20000 Shares / No of shares) * No of shares exchanged
= ($20,000/200) * 50 = $100 * 50 = $5,000
b. Increase in Tax Liability for Green = Recognized Gain * Marginal tax rate
= $55,000 * 21%
= $11,550
c. Green's ending E&P (after redemption)
| A | Mortgage given up | $ 550,000 |
| B | (+) Value of shares exchanged | $ 5,000 |
| C | (-) Basis of Investment | $ 220,000 |
| D | E&P (A+B-C) | $ 335,000 |
| E | (+) Accumulated E&P | $ 60,000 |
| F | (+) Current E&P for the year | $ 190,000 |
| G | Green's ending E&P after redemption (D+E+F) | $ 585,000 |
d. Susan's distribution amount = Mortgage given up + Basis of shares exchanged
= $550,000 + $5,000
= $555,000
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