On January 7, 2022, Martin Corporation acquires two properties from a shareholder solely in exchange for stock in a transaction that qualifies under § 351. The shareholder’s basis, the fair market value, and the built-in gain (loss) of each property are:

Martin adopts a plan of liquidation later in the year and distributes Property 2 to a 30% shareholder when the property is worth $350,000.

a. Compute Martin's basis in Property 1 and in Property 2 as of January 7, 2022.

b. Compute Martin's realized and recognized loss on the liquidating distribution of Property 2.

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Property 1 Property 2 Net built-in loss Shareholder's Basis $300,000 525,000 Fair Market Value $375,000 400,000 Built-In Gain (Loss) $ 75,000 (125,000) ($ 50,000)