Shareholder basis in the distributed property


EFG Inc. distributed land to an individual shareholder in a nonliquidating distribution. On the date the land was distributed, EFG Inc.'s adjusted basis in the land was $20,000, the fair market value of the land was $75,000, and the land was encumbered by a $35,000 mortgage, which liability was assumed by the shareholder. The corporation's earnings and profits were $300,000 on the last day of the year in which the distribution was made after taking into effect any impact of the distribution on the corporation's earnings and profits. As a result of the distribution, how much is the amount of dividend income to the shareholder, and what is the shareholder's basis in the distributed property?

A. Dividend income of $20,000 and basis of $20,000.

B. Dividend income of $40,000 and basis of $20,000.

C. Dividend income of $40,000 and basis of $40,000.

D. Dividend income of $40,000 and basis of $75,000.

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Accounting Basics: Shareholder basis in the distributed property
Reference No:- TGS038904

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