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Parent Corporation sells land (a capital asset) to Subsidiary Corporation in an intercompany ...

Parent Corporation sells land (a capital asset) to Subsidiary Corporation in an intercompany transaction, realizing a $25,000 gain. Subsidiary uses the land for five years in its trade or business before selling the land to a nonmember of the group in a cash sale in which a $50,000 gain is realized. Which statement is correct?
A) A $25,000 capital gain is included in consolidated taxable income when Parent sells the land to Subsidiary Corporation. A $50,000 Sec. 1231 gain is included in consolidated taxable income when Subsidiary sells the land.
B) A $25,000 capital gain and a $50,000 Sec. 1231 gain are included in consolidated taxable income when Subsidiary sells the land.
C) A $75,000 Sec. 1231 gain ($25,000 from Parent and $50,000 from Subsidiary) is included in consolidated taxable income in the year Subsidiary sells the land (assuming no recapture of previously deducted Sec. 1231 losses must occur).
D) None of the above are correct.

Textbook

Prentice Hall's Federal Taxation 2014 Corporations, Partnerships, Estates & Trusts

Edition: 27^th

Authors: Anderson, Pope, Rupert

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safezone Author

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7 years ago

Thanks

Ifekwunigwe

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Thanks for your help!!

gma_of_7

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2 hours ago

Good timing, thanks!

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