Indigo Corporation Redemption Transaction Analysis
a. What is Indigo Corporation's recognized gain or loss if it distributes Property A in redemption of Brianna's shares?
b. What is Indigo Corporation's recognized gain or loss if it distributes Property B in redemption of Brianna's shares?
c. How does Indigo Corporation's recognized gain or loss change if it sells Property B to an unrelated party and then distributes the sale proceeds in redemption of Brianna's shares?
a. Indigo Corporation's Recognized Gain or Loss for Property A Redemption
b. Indigo Corporation's Recognized Gain or Loss for Property B Redemption
c. Indigo Corporation's Recognized Gain or Loss for Selling Property B to an Unrelated Party
To compute Indigo's recognized gain or loss if it distributes Property A in redemption of Brianna's shares, we need to compare the fair market value (FMV) of Property A to its adjusted basis.
In this case, the FMV of Property A is $169,800, and its adjusted basis is $84,900. Since the FMV is equal to the adjusted basis, there is no recognized gain or loss for Indigo if it distributes Property A.
Similarly, to compute Indigo's recognized gain or loss if it distributes Property B in redemption of Brianna's shares, we compare the FMV of Property B to its adjusted basis. The FMV of Property B is $169,800, and its adjusted basis is $220,740. Since the FMV is less than the adjusted basis, there is a recognized loss for Indigo. The recognized loss is $50,940.
If Indigo sells Property B to an unrelated party and then distributes the sale proceeds in redemption of Brianna's shares, the recognized gain or loss will depend on the selling price of Property B. Let's assume the selling price is $X.
The realized gain or loss from selling Property B is calculated as the difference between the selling price and the adjusted basis. The recognized gain will be the same as the realized gain if the entire amount is distributed in redemption of Brianna's shares.