Answer:
The correct option is B,$2000
Explanation:
The gain on the cash and property received by Juan can be computed thus:
Cash received $5,000
Property less mortgage:
Property value $6000
Mortgage ($1000) $5000
Total $10,000
less stock basis ($8,000)
gain on stock $2,000
Option A is since the value of cash and property received is not $8,000 which gives a no gain no loss outcome.
Option C is wrong since the property mortgage of $1000 must be deducted from the property before computing the gain or loss.
Option D is obviously wrong as the $11,000 is just the summation of property value of $6000 without considering mortgage and the cash received.
Answer:
B) $2,000.
Explanation:
Juan's gain/loss = net distribution - basis
Juan's gain = $10,000 - $8,000 = $2,000
Even if Juan had previously transferred the property in a Section 351 exchange, he would still have to recognize a gain because the liquidation included other assets. If the liquidation had only included the land (e.g. FMV $11,000) and two years would have passed since the original Section 351 transfer, then Juan wouldn't have needed to pay taxes.
