The amount of recognized gain
is limited to the property's selling price minus its adjusted basis, less any previously recognized gain
and repossession costs.
Since the corporation must compute its gains and losses on an asset-by-asset basis, H would have a recognized gain
of $25,000 from the land and an unrecognized loss of $20,000 from the I stock, if those assets were transferred to redeem E's shares.
This will result in a lowering of the basis in the replacement property so when that property is sold, the taxpayer will have to pay taxes on the recognized gain
that reflects profits realized on both the first and second properties.
865-2(b)(2), loss recognized on the disposition of an 80-percent owned foreign affiliate will reduce foreign-source passive income if, within the past five years, the seller (or a consolidated group member) recognized gain
on the disposition of a foreign affiliate that was sourced under section 865(f).
The former would be triggered, for example, if X redeemed all of A's remaining shares; the latter would be triggered, for example, if A sold the remaining 50 shares to an unrelated third party for a $30 recognized gain
However, a consistency rule would require a loss recognized on the sale of an 80%-owned foreign affiliate to reduce foreign source passive income if, within the past five years, the seller had recognized gain
on the sale of a foreign affiliate sourced under the foreign affiliate stock rule.
A transaction is subject to the existing temporary regulations under section 367(b) if it (i) involves an exchange under section 332, 351, 354, 355, 356, or 361 with respect to which foreign corporate status is relevant to the determination of recognized gain
, and (ii) does not involve a property transfer "described in section 367(a).
Although the securities the outside investors receive will be deemed boot, they will not recognize any gain on the transaction, because recognized gain
is limited to the lesser of boot received or gain realized.
If H later sells or exchanges the new machine, he will have to report, at a minimum, the first $1,000 of recognized gain
as ordinary income.
Thus, if the personal property has little or no value, the recognized gain
may not be significant.