Barnett Corporation owns an office building that cost $900,000. Barnett has taken $600,000 of depreciation on the building. The property is subject to a $600,000 mortgage. The office building has a current FMV of $400,000. Barnett Corporation is liquidated and the office building is distributed to a single individual shareholder who assumes the mortgage. Barnett Corporation must recognize what gain?

$300,000 gain.

Explanation:

We will find the Barnett Corporation basis in the building = Cost - depreciation $900,000 - $600,000 = $300,000

When the office building is liquidated, the worth of the building is atleast the amount of liability that is assumed on the building. The building is subject to a $600,000 mortgage.

The liability assumed is $600,000;

To find out the gain Barnett Corporation must recognize,

= Liability - Barnett Corporation Basis

= $600,000 - $300,000 = $300,000.

Therefore, Barnett's gain is $300,000.