REG Study Group – Q2 2018 - Page 11

@jsdailey. The reason is because in the first year you absorb (3000) of the (5000) loss against ordinary income. Then in year 2 you offset the 1000 gain with the remaining carryover (2000) loss for a (1000) loss against ordinary income. Thus the (3000) and (2000) are used up and none is available for year 3, hope this helps. The same question tripped me up because I had been studying Corp tax cap gain and loss and was focused on that without reading the question.

If this question were a liquidating distribution, would the answer be different?

Sample Question: CPA-04733
Owen's tax basis in Regal Partnership was $18,000 at the time Owen received a nonliquidating distribution of $3,000 cash and land with an adjusted basis of $7,000 to Regal and a fair market value of $9,000. Regal did not have unrealized receivables, appreciated inventory, or properties that had been contributed by its partners. Disregarding any income, loss, or any other partnership distribution for the year, what was Owen's tax basis in Regal after the distribution?
a. $9,000
b. $8,000
c. $7,000
d. $6,000

Choice “b” is correct. In a nonliquidating distribution, the partner's basis is reduced first by the amount of cash received and then by the adjusted basis of any property received. Thus, Owen's basis after the distribution is determined as follows:

$18,000 Owen's beginning basis
(3,000) Cash received
(7,000 ) Basis of property received
——–
$ 8,000 Owen's adjusted basis after the distribution
=======

Choices “a”, “c”, and “d” are incorrect per the above explanation.

ANSWER: False

If adjusted current earnings (ACE) exceeds alternative minimum tax income (before the ACE adjustment), then 50 percent of this difference is used as an adjustment for calculating alternative minimum tax income.
True
False

The stock in Brown Corporation is owned 60% by Joan and 40% by Becky. Joan and Becky are not related. Becky and Joan transferred a parcel of land that they owned to Brown in Year 2, and 18 months later, in year 3, Brown liquidated and transferred all of the land to Joan. At the time of contribution in year 2 the land had a fair market value of $100,000 and adjusted basis of $140,000. In year 3, at the time of liquidation, the value of the land had declined to $70,000. How much loss can Brown Corporation recognize on the distribution?
$ 0
$40,000
$42,000
$70,000

@CPAfit:
Is the correct answer $70,000?
The reason being corporation recognizes G/L as if it sold the assets for the FMV, which is the 1st tax:
$70,000 ……………..FMV
<$140,000> ………..<Basis>
—————-
$<$70,000> …………. Loss
==========
The stock in Brown Corporation is owned 60% by Joan and 40% by Becky. Joan and Becky are not related. Becky and Joan transferred a parcel of land that they owned to Brown in Year 2, and 18 months later, in year 3, Brown liquidated and transferred all of the land to Joan. At the time of contribution in year 2 the land had a fair market value of $100,000 and adjusted basis of $140,000. In year 3, at the time of liquidation, the value of the land had declined to $70,000. How much loss can Brown Corporation recognize on the distribution?
$ 0
$40,000
$42,000
$70,000

Under a divorce settlement, Joan transferred her 50% ownership of their personal residence to Jim. The joint basis of the residence was $200,000. At the time of the transfer, the property's fair market value was $300,000. What was Joan's recognized gain and Jim's basis for the residence?

Recognized gain Basis
a. $50,000 $250,000
b. $50,000 $300,000
c. $0 $200,000
d. $0 $300,000

Answer is c. Why no gain though?

Is it correct that a long term capital loss from an S-Corp is entered twice on form 1120s ( but not entered in ordinary income computation ) and k-1 ?