Sherburne Corporation reported current E&P for 20X3 of $500,000. During the year, the company made a distribution of land to its sole shareholder, Ted Bozeman. The land's fair market value was $150,000 and its tax and E&P basis to Sherburne was $100,000. Ted assumed a mortgage attached to the land of $25,000. What amount of dividend income does Ted report because of the distribution, and what is Ted's income tax basis in the land received from Sherburne?
What will be an ideal response?
$125,000 dividend and a tax basis of $150,000 in the land.
Ted reports dividend income of $125,000, computed as the fair market value of the land received of $150,000 less the mortgage he assumes of $25,000. Ted's income tax basis in the land equals its fair market value of $150,000.
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