Maybe the question is wrong? I'm kind of confused about what you're asking. The answer to the question is correct. It's asking about the basis in the land. Where does it ask about the person's basis? If it's the explanation to the question that you posted then that's correct too. It says the basis is 90,000 before and 50,000 after.
This is from the AICPA's website:
“When an S corporation distributes appreciated property to its shareholders, Sec. 311(b) provides that the corporation must recognize gain as if it sold the property for its fair market value (FMV).5 For these purposes, the FMV cannot be less than any liabilities to which the property is subject and that the distributee assumed.6 Each shareholder must then increase his or her basis in the corporation’s stock for his or her share of the gain.7
The S corporation is then treated as having made a distribution equal to the FMV of the property, less any liabilities the shareholder assumed.8
Example 8: A owns 100% of S Co., an S corporation. S Co. distributes property with a basis of $100 and an FMV of $1,000. S Co. has no accumulated E&P, and A has a basis in S Co. stock of $200.
Upon the distribution of the property to A, S Co. must recognize gain of $900 under Sec. 311(b). This gain increases A’s basis in the S Co. stock from $200 to $1,100. A is then treated as having received a distribution of $1,000, the FMV of the property. This reduces A’s basis from $1,100 to $100, and the entire distribution is tax free.
When property is distributed with an FMV that is less than its adjusted tax basis, the S corporation is barred from recognizing a loss by Sec. 311(a). The recipient shareholder is treated as having received a distribution equal to the property’s FMV less any liabilities the shareholder assumed.9 This results in a step-down of basis without the corresponding loss being recognized by the S corporation, making distributions of loss property a bad idea. As an alternative, the S corporation should consider selling the property to an unrelated party to trigger the loss, and then distribute the cash to its shareholders”
F-Pass
A-Pass
R-Pass
B-Pass
I'm a CPA!
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